B&G Foods, Inc.

Q4 2022 Earnings Conference Call

2/28/2023

spk10: Good afternoon, and welcome to the B&G Foods fourth 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 Jirelem, Senior Director of Corporate Strategy and Business Development for B&G Foods. Please go ahead, ma'am.
spk19: Good afternoon, and thank you for joining us. With me today are Casey Keller, our Chief Executive Officer, and Bruce Baca, our Chief Financial Officer. You can access detailed financial information on the quarter and full year 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 condition. B&G Foods undertakes no obligation to publicly update or revise any forward-looking statements, whether it is the 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 for fiscal 2023 and beyond. Bruce will then discuss our financial results for the fourth quarter and fiscal 2022 and our guidance for fiscal 2023. I would now like to turn the call over to Casey.
spk21: Good afternoon. Thank you, Sarah. And thank you all for joining us today for our fourth quarter and fiscal 2022 quarter earnings call. Fourth quarter performance demonstrated strong recovery with cumulative pricing actions covering inflationary costs as we expected. Net sales increased plus 9% versus last year, with adjusted EBITDA as a percentage of net sales at 15% compared to 14.9% last year. Excluding items affecting comparability, gross profit as a percentage of net sales improved to 20.6% in Q4 2022, increasing versus 19.7% in Q4 2021. This is the first quarter in 2022 where margins were at least flat or improving year over year. Some key perspectives on the results. Inflation. Total fiscal year 22 input cost inflation impact finished at greater than plus 20%. We are starting to see some moderation in key commodities, including soybean oil, wheat, corn, but costs still remain at historically high levels. In addition, freight, transportation, and warehousing costs moderated from last summer highs, although still above last year. Pricing. In total, pricing realization, including product mix, contributed $99.2 million in Q4, compared to $75.5 million in Q3. Net pricing actions fully recovered input cost inflation in the quarter, following final price increases for 2022 implemented in August and October. Volume. Q4 sales volumes were relatively resilient against the significant price increases to offset inflation, partly reflecting the improvement in year-over-year customer service levels. In total, sales volume declines were approximately $45 million in Q4. In particular, spices and seasonings net sales grew plus 17.4% in Q4, driven by improved production and service performance. More than half of the Q4 volume declines were in green giant, driven by the exit of a low-profit canned business in the dollar channel and higher elasticity following fall seasonal pack price increases. Supply and service. Customer service and fill rates improved during the quarter, reaching over 95% in December. Last year, December service levels were less than 90%, impacted by disruptions from the Omicron COVID variant in the supply and distribution network. At this stage, some supply issues remain behind materials availability and co-packer availability, but those are becoming more isolated situations. In totality, fiscal year 2022 was challenging, with rapidly rising inflationary inputs across key commodities, particularly following the Ukraine war, and the constant pressure of implementing pricing actions that lagged cost increases to adhere to customer lead time requirements. But we are encouraged by Q4 results and performance, reflecting the catch-up of pricing against costs across the portfolio, a moderating inflationary environment, and the recovery of our higher margin spices and seasonings business. In fiscal year 23, we expect inflation to continue but at lower rates, currently estimated at plus 5% to 6%, with the biggest new 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 have raised prices selectively to recover higher input costs, but only against key commodity categories versus the broader actions required in fiscal year 22. We have also modified our pricing approach with customers on Crisco to more accurately adjust to market costs on a quarterly basis. Finally, price elasticities are estimated to increase somewhat as the economy tightens and some consumers trade down on the margin to cheaper alternatives. As a result, we expect fiscal year 23 to demonstrate continued margin recovery as previously implemented pricing actions offset year-over-year inflation, particularly in the first half. Net sales, excluding investors, are expected to increase at plus 1% to 2%, driven by pricing benefits offset by volume elasticity. We expect that sales growth will also be impacted by moderate price declines on Crisco to reflect projected lower soybean oil costs in the second half of the year, while maintaining gross margin dollars. Bruce will discuss fiscal year 23 guidance in more detail. Further, we are continuing to make progress on reshaping the B&G Foods portfolio. The sale of the Back to Nature brand to Barilla was completed in early January. as a proactive step to exit the small, fragmented, lower-margin snacks portfolio that is outside of the future B&G Foods core. The proceeds from the Back to Nature divestiture were used to make a partial prepayment of our variable rate term loan. We are actively reviewing other divestiture possibilities to sharpen the portfolio focus and reduce leverage and debt. Finally, the transition to four business units, spices and flavor solutions, meals, frozen and vegetables, and specialty, remains on track, and they are largely up and running. As discussed, these units clarify the portfolio focus and future platforms for acquisition and push accountability down to improve management and decision-making. Business unit leadership is working to drive improved margins, better manage supply and demand, and build stronger growth plans. We expect to be in a position to share business unit financial performance later this year. Thank you, and I will now turn the call over to Bruce for more detail on the quarterly performance and outlook for the year.
spk22: Thank you, Casey. Good afternoon, everyone. Thank you for joining us on our fourth quarter and fiscal 2022 earnings call. As you can see, we had a fairly strong finish to the fourth quarter to an otherwise challenging year. The primary challenges that we faced at the onset of the year, inflation, inflation, and inflation, continued to plague us throughout the remainder of the year. We expected these inflationary pressures from the beginning, but in part due to the outbreak of the Ukraine war, the inflationary pressures were much greater than any of us anticipated when we first put together our outlook for 2022. Pricing was the primary tool to help combat inflation, but the structural delays involved in implementing price increases resulting from customer advance notice requirements limited our ability to fully offset these costs for much of the year. The inflation was fierce, and it flowed into our numbers from the beginning of the year. Our pricing model was back half-weighted, though, and so, as we discussed in our previous earnings calls, our financial performance in the first and second quarters was extremely challenged. The third quarter was also difficult, but we began to see green shoots as the pace of inflation began to moderate and our pricing began to catch up with costs. This dynamic set up a nice fourth quarter for us, which benefited from our pricing actions, moderation in the pace of inflation, and a relatively benign comparison when looking at the fourth quarter of 2021, which was negatively impacted by supply chain disruption in the closing month of the year from the Omicron variant of COVID. In fiscal 2022, we generated $2.163 billion in net sales, $301 million of adjusted EBITDA, and $1.08 in adjusted diluted earnings per share. In the fourth quarter of 2022, we generated $623.2 million in net sales, $93.6 million in adjusted EBITDA, and 40 cents in adjusted diluted earnings per share. Our fourth quarter 2022 compares favorably to the prior year period when we generated $571.8 million in net sales, $85.1 million in adjusted EBITDA, and $0.39 in adjusted diluted earnings per share. I will now highlight the performance of some of our larger brands. Net sales of Crisco, the largest beneficiary of full-year pricing in the overall B&G Foods portfolio, increased $16.8 million, or 15.9%, in the fourth quarter of 2022 as compared to the fourth quarter of 2021. Net sales of Crisco increased by $78.5 million, or 26.8% for fiscal 2022 as compared to 2021. Crisco was expected to deliver $270 million in net sales annually when we acquired it in late 2020, generated more than $370 million in net sales this year. While costs are up significantly and margins are down, We were able to manage Crisco to deliver profit dollars that were generally in line with our acquisition model. Collaboragirl had another great year under B&G Foods ownership. Net sales increased $7 million, or 28.8%, in the fourth quarter of 2022 as compared to the fourth quarter of last year, and for fiscal year. 2022, collaborators net sales increased by $17.5 million or 22% compared to 2021. Net sales of cream of wheat increased by $5.1 million or 26.1% for the quarter and $14.1 million or 21% for the fiscal year. Net sales of Ortega increased by $3.5 million or 10.4% for the quarter and increased by $3.1 million or 2% for the fiscal year. Our investments in supply chain appear to be paying off for Ortega, which had a strong second half of the year finish following a challenging first half, which was plagued by negative sales performance when compared to fiscal 2021. Maple Grove Farms increased by $1.3 million or 6.6% in the fourth quarter of 2022 compared to the prior year period. Maple Grove finished the year up $3.2 million or 4% compared to the prior year. Our spices and seasonings business, which had been plagued with supply chain challenges throughout much of the year and had the last peak 2021 performance, also had a strong finish. Net sales of spices and seasonings were up $13.4 million or 17.4% in the fourth quarter of 2022 compared to the fourth quarter of 2021. Despite the slow start, spices and seasonings finished the year down just $12 million or 3.2% compared to the prior year. Fourth quarter performance represents a huge turnaround from the prior nine months of the year, which had decreased by $25.4 million or 8.6%. Net sales of Green Giant, including LeSore, decreased by $11.3 million, or 6.9%, for the fourth quarter of fiscal 2022, as compared to the fourth quarter of 2021. Net sales of Green Giant were somewhat challenged in the back half of fiscal 2022, declining in both the third and fourth quarters, although performance in the fourth quarter showed relative improvement to our third quarter shortfall. On a full year basis, net sales of Green Giant were down $19.5 million or 3.6% when compared to the prior year. Base business net sales of all other brands in the aggregate increased by $15.4 million or 12.1% for the fourth quarter of 2022 as compared to the fourth quarter of 2021 and increased by $22.1 million or 4.7% for fiscal 2022 compared to fiscal 2021. Gross profit was $126.1 million for the fourth quarter of 2022 or 20.2% of net sales, excluding the negative impact of $2.5 million of acquisition divestiture related expenses and non-recurring expenses included in cost of goods sold during the fourth quarter of 2022 the company's gross profit would have been $128.6 million or 20.6% of net sales. Gross profit was $101.9 million for the fourth quarter of 2021 or 17.8% of net sales. Excluding the negative impact of $10.8 million of acquisition divestiture-related expenses and non-recurring expenses, including the cost of goods sold during the fourth quarter of 2021, the company's gross profit would have been $112.7 million, or 19.7% of net sales. Gross profit as a percentage of net sales, excluding the impact of acquisition, divestiture, and non-recurring expenses, was up approximately 100 basis points in the fourth quarter of 2022 compared to last year's fourth quarter. The improved margins represent a significant turnaround from the first three quarters of the year which saw gross profit at the percentage of net sales, excluding the impact of acquisition, divestiture-related, and non-recurring expenses down 530 basis points compared to the prior year periods. Selling general and administrative expenses decreased by $0.4 million, or 0.9%, to $51.9 million for the fourth quarter of 2022 from $52.3 million for the fourth quarter of 2021. The decrease was composed of reductions in acquisition divestiture-related and non-recurring expenses of $6.5 million and consumer marketing expenses of $.2 million, partially offset by increases in general and administrative expenses of $2.3 million, warehouse expenses of $2.3 million, and selling expenses of $1.7 million. Expressed as a percentage of net sales, selling general and administrative expenses improved by 0.8 percentage points to 8.3% for the fourth quarter of 2022 as compared to 9.1% for the fourth quarter of 2021. We generated $93.6 million in adjusted EBITDA in the fourth quarter of 2022 compared to $85.1 million in the fourth quarter of 2021. The increase in adjusted EBITDA was primarily attributable to our pricing initiatives, which finally caught up to industry-wide input costs and logistics inflation. Additionally, we had a relatively strong finish to the year in 2022 that compared favorably to the fourth quarter of 2001, which was negatively impacted by the Omicron COVID variant. Adjusted EBITDA as a percentage of net sales was 15% in the fourth quarter of 2022 compared to 14.9% in the fourth quarter of 2021. Fourth quarter of 2022 was the first and only quarter of the year which had year-over-year increases in adjusted EBITDA and adjusted EBITDA as a percentage of net sales. The improved margins represent a significant turnaround from the first three quarters of the year which had a decrease in adjusted EBITDA as a percentage of net sales of nearly 490 basis points compared to the prior year periods. Interest expense was $36.3 million for the fourth quarter of 2022, compared to $26.6 million in the fourth quarter of 2021. The primary driver for the increase in interest expense was an increase in our outstanding variable rate debt, which is currently tied to LIBOR as well as an increase in LIBOR. Depreciation and amortization was $19.5 million in the fourth quarter of 2022 compared to $21.6 million in the fourth quarter of last year. We generated 40 cents in adjusted diluted earnings per share in the fourth quarter of 2022 compared to 39 cents in the prior year. While we certainly had our share of challenges in 2022, We are very happy with our finish to the year. As a reminder, our first and second quarters of 2022 were the most challenging. The third quarter began to show improvement. Our fourth quarter was the culmination of a lot of hard work on the part of our organization over the course of the year as we adapted and responded to the cost pressure and supply chain challenges that we faced. As we look forward, we are cautiously optimistic about our outlook for 2023 and beyond. We expect to have the most favorability as compared to 2022 in the first half of the year as we lap the greatest cost drags from 2022. We believe that our third quarter will show a modest improvement in 2023 versus 2022 and that the fourth quarter of 2023 is expected to look similar in many regards to the fourth quarter of 2022. With that said, We have lived in an uncertain world for the last three years, and we don't fully know what the next set of challenges will be. But based on what we know today, we expect 2023 net sales of $2.13 to $2.17 billion, adjusted EBITDA to be in the range of $310 to $330 million, and adjusted diluted earnings per share to be in a range of $95 to $1.15. Our guidance... assumes pricing benefit throughout the year and modest volume declines, coupled with elevated cost environment and more modest levels of inflation throughout the portfolio. While the economy is still turbulent, we believe that we have seen the worst of the escalation in inflationary pressures and that unlike last year, pricing is finally being given the opportunity to catch up to costs. Additionally, we expect for full year 2023, Interest expense of $145 to $150 million, including cash interest of $140 to $145 million. Depreciation expense of $47.5 million to $52.5 million. Amortization expense of $20 million to $22 million. An effective tax rate of 26.5 to 27.5%. And CapEx of $35 to $40 million. In addition to the risk factors discussed in our annual report, key factors that could lend to either upside or downside risk to our guidance include the level of elasticity that we may face given the price increases that we have already executed, as well as any additional elasticity as a result of our trade spend optimization efforts. And while we are hoping for at least a pause in the levels of inflationary pressures that we are seeing in certain input costs, we still live in a very uncertain world and must still expect the unexpected. We are also closely watching the promotional activity levels in our key categories and private label trends. We believe that the combination of a better operating performance in 2023 coupled with more favorable working capital trends and a reduction in our dividend announced last November will help drive our efforts to reduce leverage and improve our balance sheet. Now I would like to turn the call back over to Casey for further remarks.
spk21: Thank you, Bruce. In closing, we are making progress to turn around and strengthen B&G Foods' portfolio and performance. Q4 results demonstrated recovery with pricing covering inflationary costs and a positive reduction in leverage. We also completed a first step in reshaping the brand portfolio with a back-to-nature divestiture and have implemented the focused business unit structure to manage the portfolio with greater clarity and accountability. This concludes our remarks, and now we would like to begin the Q&A portion of our call. Operator?
spk10: Thank you, sir. We will now be conducting the question and answer session. If you would like to ask a question, please press star and then 1. A confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. The first question we have is from Andrew Lazar from Barclays. Please go ahead.
spk03: Great. Good afternoon. Good afternoon, Andrew. I guess to start off, I think you mentioned 1% to 2% net sales growth guidance for the year. Does that incorporate the $50 million or so in lost sales from the sale of Back to Nature?
spk21: Yeah, but that would be an organic number with Back to Nature out of both the fiscal year 22 base and the fiscal year 23 numbers.
spk03: Got it. Okay. So that one to two is organic then. Okay. So in light of that, I guess I'm trying to get a better sense or any additional color you can give us on how that breaks down, best guess, in terms of the net benefit from pricing that you'll still have this year. versus the type of volume offset. You obviously had 17% pricing benefit in 4Q. You still, as you said, in the first half have somewhat easier comps on pricing before you start to lap more significant price. And I'm trying to get a sense also of how you expect volume to play out, at least at this stage. I know it's dynamic.
spk21: Yeah, I mean, I think we expect to get pricing benefit in that 1% to 2%. But part of that pricing benefit will get offset when we, you know, because we have a plan on Crisco that we will lower prices as soybean oil costs go down. So remember, we will go to retailers and adjust prices as soybean oil commodity costs move. And we expect them to move downward, particularly in the back half of the year, year over year. So there is a little bit of offset to our pricing benefit with Crisco. Our pricing plan will preserve gross margin dollars, but we'll have a net sales effect, a typical commodity business kind of profile. The other impact is that the last year in the first quarter, we had fairly heavy demand behind the assets. the Omicron variant, boosting demand, people staying home and other things. So that's a little bit of a volume offset in the first quarter. We expect to get the pricing benefit flowing through in the first quarter, but demand may be a little bit down. And I think you've seen that in most of the other, you know, peer company reports. So, look, I mean, we will probably have modest volume decline offset by pricing benefit that yield the 1% to 2% offset by, you know, Crisco pricing going down as soybean oil costs go down, which is what we expect. Okay.
spk03: And then gross margins, obviously, a couple years ago prior to the pandemic and such in 19 and even 20 were sort of closer to that 24% to 25% level. Fourth quarter, obviously, you started to finally see the recovery year-over-year in gross margin. I know there's a long way to go, but as you think through the outlook for 23, what sort of gross margin recovery do you think we can get that's built into at least your EBITDA forecast?
spk22: Go ahead. Yeah, I was going to say, directionally, it's going to be comparable to the movement that you're going to see in EBITDA margins. We don't typically give the gross margins. forecasts for the year. We're going to be moving back toward that direction, but we're not going to get all the way there in 2023. And some of this is structural. If you think about, you know, Crisco, for example, you know, that business is generally speaking generating the profit dollars of the business that we bought, but sales are $100 million higher, right? And so when you think about that, what that just does from an algebra standpoint to your margins, It's going to compress them, just structural compression, even though you're generating the same amount of profit margin dollars. We have that same impact across our portfolio, but in a smaller way in some of the brands and categories where we had to take price, but maybe not as much price to protect dollars.
spk21: And then, thank you. The easiest way to say that, Andrew, is that we expect to recover – most of the gross profit dollars that we had in 2021 in 23 with our pricing actions. But obviously as Bruce said, margins won't be the same because you've got a higher sales base that you're comparing the gross profit dollars to. Yep. That's helpful.
spk03: And the last thing, Casey, you know, I think as you started to go through this more significant sort of portfolio review, we know it's resulted in a couple of, a couple of smaller sort of divestitures so far, but there is one larger asset, green giant, and frozen that you kind of said, you know, you need to start to get a little more clarity on whether that's a business that you're going to sort of be, you know, all in on or all out on. And if you're going to be all in on it, it probably would require, you know, gaining more scale. But either way, you had to improve the profitability first before you could kind of make that call. So I guess I'm trying to get a sense of where we are in that sort of journey of discovery. If you've got new thoughts one way or the other on how you're leaning and and where that temperature state and that business sort of fits into the portfolio going forward. Thanks so much.
spk21: Yeah, I mean, the portfolio reshaping, I think, is, you know, an exercise where we are trying to, you know, we're trying to obviously improve the margin profile of our core business and also the growth prospects of the core business and also platforms where we think we can acquire and build value. So the jury, I mean, the jury to me is not out on Green Giant. We're still working to improve the business. We're still evaluating, you know, longer term, do we want to scale up in Frozen? But it's an active discussion that we're having internally. There are other things in our portfolio reshaping that we are working on as well. So, you know, more to come on that. I can't really talk about it in a lot of detail, but we are actively working on the portfolio reshaping to set, you know, kind of our platforms for the future. Thank you.
spk14: Thank you.
spk10: The next question we have is from Hale Holden from Barclays. Please go ahead.
spk05: Thank you. I had just two quick questions. Can you give us the variable rate pay down that occurred after the back of nature sale or the dollar amount loss?
spk22: Yeah, we've paid down $60 million to the term loan so far this year.
spk05: Great. Thank you, Bruce. And the second question is, as you look across the portfolio and you think about the volume versus pricing versus elasticity kind of discussion, which segments or brands are you watching most closely? Do you think that are most susceptible to private label where you may not have that pricing or may have to adjust pricing over time?
spk22: I think it's a combination. I mean, clearly when you think about something like Green Giant on the canned side, that's an area where we're always watching market share, seeing what the branded competitors are doing and what the private label competitors are doing. That's less of a value-add category, so there's definitely some sensitivity there, and that's an area where we took price. So that's one area for one reason. Crisco is obviously another one. It's the brand. in vegetable oil, and it's the only brand in shortening. But we still have to watch what's going on because the amount of prices from the increase standpoint was so great. So there's two examples on different sides of the coin. One positioning, you know, it's commodity category. The other one, it is the brand, but there was a lot of pricing. And you have that across the portfolio to a lesser degree with everything.
spk06: Great. Thank you very much. I appreciate it.
spk10: The next question we have is from David Palmer from Evercore ISI. Please go ahead.
spk09: Thanks. Just a quick question on shipments versus consumption. Would you expect the spread to be a positive shipment versus consumption in the first quarter as well?
spk21: Well, I think what you're probably seeing in a consumption day in the first quarter is that, you know, the effect of Omicron shutdowns. I mean, our offices, you know, for example, last January were kind of partially closed. We're seeing a hard comparison to the January, early February time period last year. And, you know, we will eventually shift to that consumption profile. You know, we are seeing our consumption trends improve now in the back half of February as we've kind of come through that Omicron period. you know, kind of stay-at-home office closure environment last year in January, early February. So I think, like I said, I think we'll have a little bit of a tougher comp in the early part of first quarter, but we expect it will get better when pricing will flow through more on a positive side in the back half of the quarter.
spk09: Well, I mean, in the fourth quarter, your shipments were ahead of consumption last Is that a dynamic you would expect in the first quarter as well?
spk21: No. I'm sorry, I thought you were asking about the first quarter. In the fourth quarter, remember last year we had trouble shipping towards the end of the fourth quarter because of Omicron call-outs in our distribution system. We had carrier call-outs, warehouse call-outs. So we had trouble shipping towards the end of Q4 in 2021. We did not have any trouble shipping towards the end of the quarter in 2022. So basically our supply and distribution network was fully functioning. So I think that's the main difference, why you have a slight difference in consumption and shipments in Q4. But consumption was still reasonably strong in Q4 overall.
spk09: And you don't have any of that Omicron disruption from last year
spk21: What we saw was a surge in demand in January and early February from the Omicron disruption. So it moved from kind of a supply problem to an elevated demand with stay-at-home consumption of food. So it moved to a demand issue. So we had elevated demand last year. It was less of a supply and shipment problem. We had service problems in the early part of Q1 last year, but we also had elevated demand going on.
spk09: Yeah. No, I'm just wondering, because of those disruptions last year, if your shipments would be above consumption this year, but it doesn't sound like that's clearly going to be the case.
spk21: I think we'll be shipping closer to consumption profiles this year because you don't have the disruption going on.
spk09: Yep. I just wanted to follow up on price elasticity for 23. Do you expect price elasticity levels to remain similar to the recent levels that we are witnessing in the measured channel data? And I'll just wrap in another question about price elasticity in there. You know, what are some of the things that we're seeing going on when we look at green giant and spices? It looks like the price elasticity is much higher. in those parts of the business? Maybe is there something temporary that's causing that? Any thoughts about your price elasticity levels going forward? Thanks.
spk21: Yeah, I think it obviously varies by category. Spice and seasonings, I think, is less of an impact of price elasticity. Normally, we still have a hangover from the first half of 2021. where we had service issues, so we are kind of rebuilding some of the distribution that we couldn't supply in that period. So I don't really think that's an elasticity issue. I do believe that we are forecasting slightly higher elasticities on what I'd call the commodity businesses, you know, number one, Crisco and Green Giant, particularly on the canned side, but also on some of the frozen vegetable side. We expect velocities will be below one, but a little bit higher than what we've seen in the past as consumers become more sensitive to the higher prices. And even if the percentage spread to private label is the same, the absolute dollar spread is growing a little bit. So, you know, we are expecting a little bit higher last issues, but still expect to see some positive pricing benefit, you know, in 2023, if that helps.
spk09: Yeah, but was there anything particular happening with Green Giant or Spices where you were taking outsized measures on pricing that was out of step with the category that was causing what we're seeing here?
spk22: I mean, we don't think so in Spices. And again, Spice had a great fourth quarter, had a slow start to the year in 2022, which for us at least was a lot more about supply chain I know that there is a large public company that sometimes has different explanations for their trends, but they have a little bit different business than us. Certainly 2021 was a phenomenal year for Spices. It was challenging to lap that in 2022. Those challenges probably were exaggerated for us in the first half, even the first three quarters of the year, but a pretty strong finish there. And 100%, Green Giant Canned is a very different business than Spice's. It's a much more commoditized category.
spk21: Remember, our Spice's business is not really in A to Z. It's more in blends and other things. I don't believe that it was last year. As I said, we had some supply problems in the first and second quarters of last year that we had difficulty supplying and we had to kind of rebuild distribution in which you saw kind of happening in the fourth quarter. So I think it's more around our supply and service, you know, portfolio, I mean, excuse me, performance, and recovering all of that lost distribution and getting back in business, which is what you're seeing happening now in Q4, and we project into 23.
spk14: Thank you. The next question we have is from Michael Lavery from Piper Sandler.
spk10: Please go ahead.
spk02: Thank you. Good afternoon. Hey, Michael. With the... elevated SNAP benefits rolling off, I guess, technically tomorrow. Can you give a sense of how you've factored that into your thinking on guidance? And maybe even specifically, are there any cases where consumers trading down might give you a benefit? And of course, others where it'd be a headwind, just any maybe potentially puts and takes, but how that's factored into your thinking on the year?
spk22: Yeah, I mean, to be honest, we haven't historically really tried to tie SNAP benefits into our forecasts. It's a little bit tricky for us. I know people follow it. It's just not something that we've historically commented on.
spk21: But I think, Ned, we are expecting more price sensitivity, you know, in kind of lower and middle income markets. consumer-based next year, which is why we factored up some of our elasticities on our more commodity-driven businesses where we have higher private label penetration. So I think we factored in some element of that that you're talking about, but it's more around overall price sensitivity and a little bit higher elasticity from what we saw in 2022.
spk02: Okay, that's helpful. And just when you touched on close to the end of the prepared remarks, the potential for some trade optimization, can you unpack a little bit how that might look and how difficult that may or may not be to achieve and what potentially share implications could be?
spk21: I think this is an ongoing efficiency and productivity effort that we've been working on for the past year, which is just to take a look at our trade performance and ensure that we're getting appropriate returns forward and moving towards our better promotion events. We're not reducing trade spending in 2023 as kind of on a percentage basis, but we're trying to optimize the performance of it to make sure that we're producing stronger returns and stronger lifts on the events that we do run with customers. Historically, we haven't, in my opinion, we have not done enough post-promotion analysis to really understand that. to adjust our plans and to drive efficiency. So I don't think you're going to see a reduction in our trade spend. You're going to see an optimization that hopefully will drive better performance and lift off the spending that we do have.
spk02: Could there be upside to trade spending, just given that most of the industry is still below pre-COVID levels?
spk21: I mean, we've brought trade spending back to get closer to pre-COVID levels. Look, you know, I think the upside to me is if we can get stronger event performance with the spending that we're doing by readjusting, you know, the way we're spending our money and what types of events and vehicles we're using. So that to me is the upside of trying to get, you know, a more efficient trade spend program and optimizing the spending performance.
spk11: Okay. That's helpful. Thank you.
spk10: Thank you. The next question we have is from Robin Moscow from Credit Suisse. Please go ahead.
spk08: Rob, happy birthday. Oh, that's very kind of you and heartwarming. Appreciate it, Bruce. What better way to spend it, right? And now my question. What gives you visibility on pricing on Crisco products? going lower in the back half? Is it because it's lower now and then you know it's going to, you're going to be able to flow that through in the back half? Or is it just kind of, you just think vegetable oil prices are really high and they have to go lower? And then I had a follow-up.
spk21: Yeah, I think it's really, look, we don't know, Rob. We don't know for certain. But the reason why we're saying that is we saw prices, if you just think about the stock you know, we had prices above 80 cents a pound on soybean oil, you know, last year moderating down to probably 70 cents a pound as we were kind of going into the fourth quarter. Now we're down in kind of the low to mid 60s in price per pound. And just our intelligence says we expect it to kind of stay there or maybe go a little bit lower, which means that as we get into the back half, where we were experiencing those big pricing moves last year, we think it will be probably below where the market was last year in the third and fourth quarters in particular.
spk08: Okay. And then I wanted to know about your CapEx guide. It's really pretty low. It's really no different than it was in 2019. And at the Cagney Conference, we heard a lot about companies investing in CapEx, not just for capacity, but also to automate and digitize their supply chains, put in more up-to-date equipment to gain efficiencies, and I think just keep up with a more volatile demand environment. Are you concerned that you know, that your supply chain may not be keeping up with your peers that are making these investments?
spk22: So I think the couple pieces that you have to remember is call it roughly 50% or so of our business is made through co-packers or contract manufacturers. And so there is a little bit less probably demand from a percentage of sales, if you want to think about it that way, from our factories. And then when you think about our CapEx spending over time, Fairpoint, it's similar in dollar terms to where we were probably 2018, 2019. We were in the process back then of implementing the JDE ERP systems, and so there was a couple years of elevated spend that was probably plus $10 million annually to get that done. And so that going away allowed us to kind of continue to spend a comparable dollar amount, but probably more of those projects in line with what you're thinking about Even kind of 2021, parts of 22, we still had pretty large spend on the projects that we did around Ortega, both from a taco shell and a taco sauce, where we increased some capacity there. And so there are examples of what you're talking about. I don't disagree with your comment other than there are some offsets to it with regards to this year potentially not having a big spend project like JDE or a new taco shell line.
spk21: I would say that, you know, because our capital is shifting from, you know, the ERP implementation to what we were doing with capacity additions, this coming year we will be more focused on kind of BI software enhancements, also planning software enhancements, planning systems. I mean, we see a big opportunity to improve the effectiveness of our supply operations, our planning operations, and pulling down inventory levels and other things. So that's becoming a larger focus of where we're shifting our time and attention from a capital and upgrade standpoint.
spk14: Okay. Very good. Thank you. Thanks.
spk10: The next question we have is from Rob Dickinson from Jefferies. Please go ahead.
spk04: Great. Thanks so much. Just a clarification question on Q1. Bruce, I think I heard you say that Q1 would probably look like Q4. Was that comment made kind of with respect to actual absolute EBITDA dollars?
spk22: No, sorry. I think you maybe misheard or I must have misspoken. So I think our expectation this year is Q1. Q1 and Q2 were pretty bad last year. Q2 was actually worse than Q1. And so when we think about lapping and getting some EBITDA recovery, first quarter and second quarter of 2023, we'll have some favorability built in just from lapping really bad performance from 2022. 2023 in the third quarter should be probably a little bit better than 22, but but the degree probably won't be the same as the expectations around Q1 and Q2. And then Q4 in 23 probably look more similar to Q4 in 22, meaning kind of we had a pretty good fourth quarter, was relatively normal from a margin standpoint. I wouldn't expect material upside in fourth quarter of 2023, you know, when we go to lap it, but you should have some pretty good margin upside there. in the first quarter and particularly in the second quarter of this year.
spk04: Okay, got it. Perfect. And then I guess just to come back to this trade optimization strategy, you know, kind of vis-a-vis the share trends that we're seeing, you know, I realize that there's been some supply constraints in the system. I also realize what you said earlier, right? It's not that you're reducing that trade, but you're optimizing it. So I'm just curious, like, you know, as we think forward, you know, through 23, I'm assuming obviously the point of, you know, optimizing a trade program is kind of like regain share, at least in some of those categories. So maybe you just provide any additional color as to kind of how you're optimizing the trade and maybe if there are areas where you think might be a bit more supported relative to industry. That's it. Thanks.
spk21: Yeah, I think it's as simple as, you know, we – We want to make sure that we're promoting and that we're promoting at competitive levels in key windows. We want to make sure that we're getting the right lift from that spending. So on some of our businesses like Crisco and Green Giant, Ortega, we will be competitive in the key promotion windows and merchandising windows. We will adjust kind of our performance. based on what we're learning about where we're most effective. As I said before, I don't really expect that we're going to reduce promotion spending. We just want to make it more effective, and we want to drive efficiency and lift behind the existing spend that we're doing, and we want to make sure that we're promoting in the right places. And, you know, coming off this inflationary environment, we've got to make sure that we're at the right price points, competitive price points, relative to competition and private label, which is, you know, what we're doing. And we think we're well-planned to be able to do that in our key merchandising programs.
spk15: All right. Great. Thank you.
spk10: Thank you. The next question we have is from Kyru Martinson from Jefferies. Please go ahead.
spk23: Good afternoon. When you look at the pricing, are you getting pushback from the retailers on where you are? Is that part of the rationale for bringing down Crisco? And what are you seeing in terms of the competitive response on pricing?
spk21: I think actually we're in a good place with retailers on Crisco because we are treating it more like a commodity pricing situation. So we have told them on a quarterly basis we'll adjust pricing up and down on Crisco to reflect the actual market costs. And so we go to them once a quarter and say, here's the trailing oil costs and what we believe we need to be priced at based on that moving up or down. So we're treating it more like a pure commodity, like coffee, in the way we're managing with retailers. And they're pretty happy with that. because there's more transparency and visibility to what is driving the pricing decisions and how we're driving that. And they're doing the same thing with their private label and other things. So it's just, we've moved to that model in the last, you know, at the very end of 22. So this is new. We weren't operating this way in 21, which is, excuse me, for the most of 2022. This is something that we are carrying into 2023. That'll be a different way that we're managing pricing that I believe is will be a cleaner way of kind of moving our price up and down in a volatile soybean oil market that's moving kind of in correlation with oil and also allowing us to preserve our gross margin dollars at different price levels.
spk23: Okay. And then, I'm sorry if I missed it, did we say what the back-to-nature divestiture generated? And then when we look at the potential for additional assets for divestiture, What is the dollar range that we should be thinking about as we look at the overall capital structure and the maturities in 2025 and beyond?
spk22: Yeah, we actually didn't disclose what the dollar amount was for Back to Nature. It was a reasonable, not earth-shattering amount. I think going forward, hard to really predict what the dollar amount of future M&A activity is going to be. I think that the primary thing for us is shaping the portfolio. We're moving in the direction of business units, greater focus on what we're good at, greater focus on buying what we think we're good at, and potentially divesting things that are less core, and that'll be the primary driver. I think the additional benefit from that will be opportunistically reducing debt in a high interest rate environment, I think is great, but really the primary driving force is gonna be portfolio optimization.
spk23: All right, then. Thank you very much. Appreciate it.
spk22: Yep.
spk10: Thank you. The next question we have is from Cara Casella from JPMorgan. Please go ahead.
spk18: Okay. This is – sorry, just a couple follow-ups. Just comments on your leverage target. You talked about getting to mid-sixes by the end of this year, right? Any sense for timing or trajectory of that, and does that include any potential additional further asset sales?
spk22: Yeah, I don't think we set an actual leveraged target for this year. You know, not really commenting on what the number is. We do expect to bring it down substantially. I mean, we've got a ratio that we need to be inside of, and we're going to work towards that. we have a plan to get there just organically, increasing EBITDA, paying down debt. That can be enhanced by any portfolio moves that result in divestitures. But again, we're not in a world where we're setting divestiture targets in an amount of proceeds that we expect to raise. That's not the expectation that we want to set for investors, and it's not how we're planning to run the business necessarily.
spk18: Okay, great. And then you mentioned On the Green Giant self-stable product, the canned, that you exited another low-margin account, how much more of this is there to go, or are we at more of a base level where you're comfortable with the margin profile of the remaining Green Giant?
spk21: I don't think we have any other exits of kind of low-margin business on Green Giant. I mean, I think this was a particular – dollar channel account that we weren't making a lot of money at, um, that we exited last fall. Um, but we don't have any other active accounts that were, that were, that were, they were, that were driving, you know, changes in our distribution profile. I mean, for the most part, we are focused on green giant on improving our profitability, improving our mix, you know, improving the, improving the, profitability of our new innovations coming into the market. That's been our primary focus. On the canned business, it's about, you know, maintaining, you know, stability in terms of our volume and margins on that business. We don't see the canned vegetable business as a place we're going to grow. We just want to maintain a stable margin profile and keep it steady. Okay, great. And then...
spk18: Within your sales guidance for the year, can you give us any more granularity in terms of which brands you expect to lead the growth versus those that are lapping tougher pricing? You mentioned Crisco passing through some of the pricing, the reduced oil costs. Any more granularity you can give into the thoughts behind guidance?
spk22: I don't think we typically give brand forecasts per se. I think certainly you would imagine to see things over time like spices and seasonings is in a higher growth rate category, and that's our expectation there. I'm not going to give a number on it. As we said earlier, when you think about Crisco, if we are in an environment where input costs come down and therefore pricing starts to normalize a little bit, hard to imagine that being a growth driver in a year where costs are going down and price comes down. Outside of that, really would hesitate to try to give you actual numbers on a brand-by-brand basis.
spk18: Okay, that's great. And then just one last one. Retailer inventory levels. Any comments there? Are there any retailers that seem to be carrying a little bit more inventory? We've heard about retailers having to carry less because of the less need for safety stock. So just thoughts there.
spk21: We haven't seen any big adjustments in our retailer inventories. And you know, in the last several months. I mean, we've seen the typical pattern of their year-end. They kind of pull inventories down a little bit, but we haven't seen any kind of permanent or been told we have a permanent reduction in our stock levels.
spk17: Okay, great. Thank you.
spk10: Thank you. The final question we have is from Eric Lawson from Seaport Research. Please go ahead.
spk07: Yeah, thanks, guys. Thanks for squeezing me in. So no birthday wishes for me? Is today your birthday, man? No, it was two weeks ago, but it was close enough. Hey, happy belated birthday. All right. So thanks. I don't want you to feel unloved. I guess I'm two weeks older and that much two weeks wiser than maybe Rob, but you know who knows.
spk20: You said that, not us.
spk07: No, happy birthday, Rob, by the way. So anyway, my question is on cash. And so your third quarter is always your seasonally biggest build for working capital because of the vegetable pack and all that sort of thing. And it starts to come off pretty meaningfully in your fourth quarter. Yet when I look at your I don't know exactly what happened with inventories in the fourth quarter. I see your full year number is still up about 20%. And you used a little cash for networking capital in the fourth quarter this year, not as much as the year before. But, you know, do you have maybe some high cost oil inventories you've got to work off here yet? Can you give me a feel for how the flow of your cash will be kind of For your first, maybe first quarter, second, maybe first half, second half, however you'd like to maybe characterize it.
spk22: You're talking 2023, not 2022, right?
spk16: Correct, correct, 2023.
spk22: So the overarching theme, both for 22 and 21, was input costs came up pretty significantly. We saw that margin compression. Obviously, we benefited from pricing, but that flowed through our inventories. And so you do have that seasonality where third quarter is always pretty rough. Fourth quarter is usually pretty good. This year's fourth quarter was pretty good, not as good as the prior year's fourth quarter, but it was pretty reasonable. But we've had two years in a row of over $100 million increases in inventory. We don't expect to have that phenomenon this year. We expect to have some favorability from a working capital standpoint. modest but favorability. And so working capital, instead of being a drain this year, should be a little bit of a benefit or at least mutual, which will make the whole cash from operations math be a lot better.
spk13: Okay.
spk22: Just imagine working capital or cash from operations, if you look at the last two years, just imagine on a full year basis those numbers being, you know, plus $100 million higher. because that's what the hurt was from an inventory standpoint.
spk07: Okay. And so your comment that it should be, you know, at least compare favorably this year, it's on a full year basis, and you're not, you won't, it's not necessarily a first or second half benefit, it's for, you're trying to characterize it as a full year. Okay.
spk14: All right. Less of the use of cash, yeah. Okay. All right. Sounds good. Thank you.
spk10: Ladies and gentlemen, there are no further questions at this time. I would now like to turn the floor back over to Katie Keller for closing comments. Please go ahead, sir.
spk21: Thank you all for joining us today. We appreciate your attention. As we've talked, we had a good, strong fourth quarter, which showed recovery in our pricing and covering inflationary costs, and we look forward to kind of getting into fiscal year 23. Thank you.
spk10: Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines. © transcript Emily Beynon Oh, my God. Music Music Thank you. music music Thank you. Thank you. Good afternoon, and welcome to the B&G Foods fourth 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 Jarolam, Senior Director of Corporate Strategy and Business Development for B&G Foods. Please go ahead, ma'am.
spk19: Good afternoon, and thank you for joining us. With me today are Casey Keller, our Chief Executive Officer, and Bruce Vaca, our Chief Financial Officer. You can access detailed financial information on the quarter and full year 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 condition. B&G Foods undertakes no obligation to publicly update or revise any forward-looking statements, whether it is the 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 for fiscal 2023 and beyond. Bruce will then discuss our financial results for the fourth quarter and fiscal 2022 and our guidance for fiscal 2023. I would now like to turn the call over to Casey.
spk21: Good afternoon. Thank you, Sarah. And thank you all for joining us today for our fourth quarter and fiscal 2022 quarter earnings call. Fourth quarter performance demonstrated strong recovery with cumulative pricing actions covering inflationary costs as we expected. Net sales increased plus 9% versus last year, with adjusted EBITDA as a percentage of net sales at 15% compared to 14.9% last year. Excluding items affecting comparability, gross profit as a percentage of net sales improved to 20.6% in Q4 2022, increasing versus 19.7% in Q4 2021. This is the first quarter in 2022 where margins were at least flat or improving year over year. Some key perspectives on the results. Inflation. Total fiscal year 22 input cost inflation impact finished at greater than plus 20%. We are starting to see some moderation in key commodities, including soybean oil, wheat, corn, but costs still remain at historically high levels. In addition, freight transportation and warehousing costs moderated from last summer highs, although still above last year. Pricing. In total, pricing realization, including product mix, contributed $99.2 million in Q4, compared to $75.5 million in Q3. Net pricing actions fully recovered input cost inflation in the quarter, following final price increases for 2022 implemented in August and October. Volume. Q4 sales volumes were relatively resilient against the significant price increases to offset inflation, partly reflecting the improvement in year-over-year customer service levels. In total, sales volume declines were approximately $45 million in Q4. In particular, spices and seasonings net sales grew plus 17.4% in Q4, driven by improved production and service performance. More than half of the Q4 volume declines were in green giant, driven by the exit of a low-profit canned business in the dollar channel and higher elasticity following fall seasonal pack price increases. Supply and service. Customer service and fill rates improved during the quarter, reaching over 95% in December. Last year, December service levels were less than 90%, impacted by disruptions from the Omicron COVID variant in the supply and distribution network. At this stage, some supply issues remain behind materials availability and co-packer availability, but those are becoming more isolated situations. In totality, fiscal year 2022 was challenging, with rapidly rising inflationary inputs across key commodities, particularly following the Ukraine war, and the constant pressure of implementing pricing actions that lagged cost increases to adhere to customer lead time requirements. But we are encouraged by Q4 results and performance, reflecting the catch-up of pricing against costs across the portfolio, a moderating inflationary environment, and the recovery of our higher margin spices and seasonings business. In fiscal year 23, we expect inflation to continue, but at lower rates, currently estimated at plus 5% to 6%, with the biggest new pressures on tomatoes, glass, etc. So far, we have not seen significant declines on key commodities, for example, soybean oil, corn, wheat, etc., from average cost levels in fiscal year 22. Again, we have raised prices selectively to recover higher input costs, but only against key commodity categories versus the broader actions required in fiscal year 22. We have also modified our pricing approach with customers on Crisco to more accurately adjust to market costs on a quarterly basis. Finally, price elasticities are estimated to increase somewhat as the economy tightens and some consumers trade down on the margin to cheaper alternatives. As a result, we expect fiscal year 23 to demonstrate continued margin recovery as previously implemented pricing actions offset year-over-year inflation, particularly in the first half. Net sales, excluding investors, are expected to increase at plus 1% to 2%, driven by pricing benefits offset by volume elasticity. We expect that sales growth will also be impacted by moderate price declines on Crisco to reflect projected lower soybean oil costs in the second half of the year while maintaining gross margin dollars. Bruce will discuss fiscal year 23 guidance in more detail. Further, we are continuing to make progress on reshaping the B&G Foods portfolio. The sale of the Back to Nature brand to Barilla was completed in early January and as a proactive step to exit the small, fragmented, lower-margin snacks portfolio that is outside of the future B&G Foods core. The proceeds from the Back to Nature divestiture were used to make a partial prepayment of our variable rate term loan. We are actively reviewing other divestiture possibilities to sharpen the portfolio focus and reduce leverage and debt. Finally, the transition to four business units, spices and flavor solutions, meals, frozen and vegetables, and specialty, remains on track, and they are largely up and running. As discussed, these units clarify the portfolio focus and future platforms for acquisition and push accountability down to improve management and decision-making. Business unit leadership is working to drive improved margins, better manage supply and demand, and build stronger growth plans. We expect to be in a position to share business unit financial performance later this year. Thank you, and I will now turn the call over to Bruce for more detail on the quarterly performance and outlook for the year.
spk22: Thank you, Casey. Good afternoon, everyone. Thank you for joining us on our fourth quarter and fiscal 2022 earnings call. As you can see, we had a fairly strong finish to the fourth quarter to an otherwise challenging year. The primary challenges that we faced at the onset of the year, inflation, inflation, and inflation, continued to plague us throughout the remainder of the year. We expected these inflationary pressures from the beginning, but in part due to the outbreak of the Ukraine war, the inflationary pressures were much greater than any of us anticipated when we first put together our outlook for 2022. Pricing was the primary tool to help combat inflation, but the structural delays involved in implementing price increases resulting from customer advance notice requirements limited our ability to fully offset these costs for much of the year. The inflation was fierce, and it flowed into our numbers from the beginning of the year. Our pricing model was back half-weighted, though, and so, as we discussed in our previous earnings calls, our financial performance in the first and second quarters was extremely challenged. The third quarter was also difficult, but we began to see green shoots as the pace of inflation began to moderate and our pricing began to catch up with costs. This dynamic set up a nice fourth quarter for us, which benefited from our pricing actions, a moderation in the pace of inflation and a relatively benign comparison when looking at the fourth quarter of 2021, which was negatively impacted by supply chain disruption in the closing month of the year from the Omicron variant of COVID. In fiscal 2022, we generated $2.163 billion in net sales, $301 million of adjusted EBITDA and $1.08 in adjusted diluted earnings per share. In the fourth quarter of 2022, we generated $623.2 million in net sales, $93.6 million in adjusted EBITDA, and 40 cents in adjusted diluted earnings per share. Our fourth quarter 2022 compares favorably to the prior year period when we generated $571.8 million in net sales, $85.1 million in adjusted EBITDA, and $0.39 in adjusted diluted earnings per share. I will now highlight the performance of some of our larger brands. Net sales of Crisco, the largest beneficiary of full-year pricing in the overall B&G Foods portfolio, increased $16.8 million, or 15.9%, in the fourth quarter of 2022 as compared to the fourth quarter of 2021. Net sales of Crisco increased by $78.5 million, or 26.8% for fiscal 2022 as compared to 2021. Crisco was expected to deliver $270 million in net sales annually when we acquired it in late 2020, generated more than $370 million in net sales this year. While costs are up significantly and margins are down, we were able to manage Crisco to deliver profit dollars that were generally in line with their acquisition model. Collaborgirl had another great year under B&G Foods ownership. Net sales increased $7 million, or 28.8%, in the fourth quarter of 2022, as compared to the fourth quarter of last year. And for fiscal 2022, Collabor's net sales increased by $17.5 million, or 22%, compared to 2021. Net sales of cream of wheat increased by $5.1 million or 26.1% for the quarter and $14.1 million or 21% for the fiscal year. Net sales of Ortega increased by $3.5 million or 10.4% for the quarter and increased by $3.1 million or 2% for the fiscal year. Our investments in supply chain appear to be paying off for Ortega, which had a strong second half of the year finish following a challenging first half, which was plagued by negative sales performance when compared to fiscal 2021. Maple Grove farms increased by $1.3 million or 6.6% in the fourth quarter of 2022 compared to the prior year period. Maple Grove finished the year up $3.2 million or 4% compared to the prior year. Our spices and seasonings business, which had been plagued with supply chain challenges throughout much of the year, and had the last peak 2021 performance also had a strong finish. Net sales of spices and seasonings were up $13.4 million, or 17.4% in the fourth quarter of 2022 compared to the fourth quarter of 2021. Despite the slow start, spices and seasonings finished the year down just $12 million, or 3.2% compared to the prior year. Fourth quarter performance represents a huge turnaround from the prior nine months of the year, which had decreased by $25.4 million, or 8.6%. Net sales of Green Giant, including LeSore, decreased by $11.3 million, or 6.9%, for the fourth quarter of fiscal 2022, as compared to the fourth quarter of 2021. Net sales of Green Giant were somewhat challenged in the back half of fiscal 2022, declining in both the third and fourth quarters, although performance in the fourth quarter showed relative improvement to our third quarter shortfall. On a full year basis, net sales of Green Giant were down $19.5 million, or 3.6% when compared to the prior year. Base business net sales of all other brands in the aggregate increased by $15.4 million or 12.1% for the fourth quarter of 2022 as compared to the fourth quarter of 2021 and increased by $22.1 million or 4.7% for fiscal 2022 compared to fiscal 2021. Gross profit was $126.1 million for the fourth quarter of 2022 or 20.2% of net sales. Excluding the negative impact of $2.5 million of acquisition divestiture related expenses and non-recurring expenses included in cost of goods sold during the fourth quarter of 2022, the company's gross profit would have been $128.6 million or 20.6% of net sales. Gross profit was $101.9 million for the fourth quarter of 2021, or 17.8% of net sales. Excluding the negative impact of $10.8 million of acquisition divestiture-related expenses and nonrecurring expenses, including the cost of goods sold during the fourth quarter of 2021, the company's gross profit would have been $112.7 million, or 19.7% of net sales. Gross profit as a percentage of net sales, excluding the impact of acquisition divestiture and non-recurring expenses, was up approximately 100 basis points in the fourth quarter of 2022 compared to last year's fourth quarter. The improved margins represent a significant turnaround from the first three quarters of the year, which saw gross profit as a percentage of net sales, excluding the impact of acquisition divestiture-related and non-recurring expenses down 530 basis points compared to the prior year periods. Selling general and administrative expenses decreased by $0.4 million or 0.9% to $51.9 million for the fourth quarter of 2022 from $52.3 million for the fourth quarter of 2021. The decrease was composed of reductions in acquisition divestiture-related and non-recurring expenses of $6.5 million and consumer marketing expenses of $.2 million, partially offset by increases in general and administrative expenses of $2.3 million, warehouse expenses of $2.3 million, and selling expenses of $1.7 million. Expressed as a percentage of net sales, selling general and administrative expenses improved by 0.8 percentage points to 8.3% for the fourth quarter of 2022 as compared to 9.1% for the fourth quarter of 2021. We generated $93.6 million in adjusted EBITDA in the fourth quarter of 2022 compared to $85.1 million in the fourth quarter of 2021. The increase in adjusted EBITDA was primarily attributable to our pricing initiatives, which finally caught up to industry-wide input costs and logistics inflation. Additionally, we had a relatively strong finish to the year in 2022 that compared favorably to the fourth quarter of 2001, which was negatively impacted by the Omicron COVID variant. Adjusted EBITDA as a percentage of net sales was 15% in the fourth quarter of 2022. compared to 14.9% in the fourth quarter of 2021. Fourth quarter of 2022 was the first and only quarter of the year which had year-over-year increases in adjusted EBITDA and adjusted EBITDA as a percentage of net sales. The improved margins represent a significant turnaround from the first three quarters of the year, which had a decrease in adjusted EBITDA as a percentage of net sales of nearly 490 basis points compared to the prior year periods. Interest expense was $36.3 million for the fourth quarter of 2022 compared to $26.6 million in the fourth quarter of 2021. The primary driver for the increase in interest expense was an increase in our outstanding variable rate debt, which is currently tied to LIBOR, as well as an increase in LIBOR. Depreciation and amortization was $19.5 million in the fourth quarter of 2022 compared to $21.6 million in the fourth quarter of last year. We generated 40 cents in adjusted diluted earnings per share in the fourth quarter of 2022 compared to 39 cents in the prior year. While we certainly had our share of challenges in 2022, we are very happy with our finish to the year. As a reminder, our first and second quarters of 2022 were the most challenging. The third quarter began to show improvement. Our fourth quarter was the culmination of a lot of hard work on the part of our organization over the course of the year as we adapted and responded to the cost pressure and supply chain challenges that we faced. As we look forward, we are cautiously optimistic about our outlook for 2023 and beyond. We expect to have the most favorability as compared to 2022 in the first half of the year as we lap the greatest cost drags from 2022. We believe that our third quarter will show a modest improvement in 2023 versus 2022 and that the fourth quarter of 2023 is expected to look similar in many regards to the fourth quarter of 2022. With that said, We have lived in an uncertain world for the last three years, and we don't fully know what the next set of challenges will be. But based on what we know today, we expect 2023 net sales of $2.13 to $2.17 billion, adjusted EBITDA to be in the range of $310 to $330 million, and adjusted diluted earnings per share to be in a range of $95 to $1.15. Our guidance... assumes pricing benefit throughout the year and modest volume declines, coupled with elevated cost environment and more modest levels of inflation throughout the portfolio. While the economy is still turbulent, we believe that we have seen the worst of the escalation in inflationary pressures and that unlike last year, pricing is finally being given the opportunity to catch up to costs. Additionally, we expect for full year 2023, Interest expense of $145 to $150 million, including cash interest of $140 to $145 million. Depreciation expense of $47.5 million to $52.5 million. Amortization expense of $20 million to $22 million. An effective tax rate of 26.5 to 27.5%. And CapEx of $35 to $40 million. In addition to the risk factors discussed in our annual report, key factors that could lend to either upside or downside risk to our guidance include the level of elasticity that we may face given the price increases that we have already executed, as well as any additional elasticity as a result of our trade spend optimization efforts. And while we are hoping for at least a pause in the levels of inflationary pressures that we are seeing in certain input costs, we still live in a very uncertain world and must still expect the unexpected. We are also closely watching the promotional activity levels in our key categories and private label trends. We believe that the combination of a better operating performance in 2023, coupled with more favorable working capital trends and a reduction in our dividend announced last November, will help drive our efforts to reduce leverage and improve our balance sheet. Now I would like to turn the call back over to Casey for further remarks.
spk21: Thank you, Bruce. In closing, we are making progress to turn around and strengthen B&G Foods portfolio and performance. Q4 results demonstrated recovery with pricing covering inflationary costs and a positive reduction in leverage. We also completed a first step in reshaping the brand portfolio with the back to nature divestiture and have implemented the focused business unit structure to manage the portfolio with greater clarity and accountability. This concludes our remarks, and now we would like to begin the Q&A portion of our call. Operator?
spk10: Thank you, sir. We will now be conducting the question and answer session. If you would like to ask a question, please press star and then 1. A confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. The first question we have is from Andrew Lazar from Barclays. Please go ahead.
spk03: Great. Good afternoon. Good afternoon, Andrew. I guess to start off, I think you mentioned 1% to 2% net sales growth guidance for the year. Does that incorporate the $50 million or so in lost sales from the sale of Back to Nature?
spk21: Yeah, but that would be an organic number with Back to Nature out of both the fiscal year 22 base and the fiscal year 23 numbers.
spk03: Got it. Okay, so that one to two is organic then. Okay, so in light of that, I guess I'm trying to get a better sense or any additional color you can give us on how that breaks down, best guess, in terms of the net benefit from pricing that you'll still have this year versus the type of volume offset. You obviously had 17% pricing benefit in 4Q. You still, as you said, in the first half have somewhat easier comps on pricing before you start to lap a more significant price. And I'm trying to get a sense also of how you expect volume to play out, at least at this stage. I know it's dynamic.
spk21: Yeah, I mean, I think we expect to get pricing benefit in that 1% to 2%. But part of that pricing benefit will get offset when we, you know, because we have a plan on Crisco that we will lower prices as soybean oil costs go down. So remember, we will go to retailers and adjust prices as soybean oil commodity costs move. And we expect them to move downward, particularly in the back half of the year, year over year. So there is a little bit of offset to our pricing benefit with Crisco. Our pricing plan will preserve gross margin dollars, but we'll have a net sales effect, a typical commodity business kind of profile. The other impact is that the last year in the first quarter, we had fairly heavy demand behind the assets. the Omicron variant, boosting demand, people staying home and other things. So that's a little bit of a volume offset in the first quarter. We expect to get the pricing benefit flowing through in the first quarter, but demand may be a little bit down. And I think you've seen that in most of the other, you know, peer company reports. So, look, I mean, we will probably have modest volume decline offset by pricing benefit that yield the 1% to 2% offset by, you know, Crisco pricing going down as soybean oil costs go down, which is what we expect. Okay.
spk03: And then gross margins, obviously, a couple years ago prior to the pandemic and such in 19 and even 20 were sort of closer to that 24% to 25% level. Fourth quarter, obviously, you started to finally see the recovery year-over-year in gross margin. I know there's a long way to go, but as you think through the outlook for 23, what sort of gross margin recovery do you think we can get that's built into at least your EBITDA forecast?
spk22: Go ahead. Yeah, I was going to say, directionally, it's going to be comparable to the movement that you're going to see in EBITDA margins. We don't typically give the gross margins. forecasts for the year. We're going to be moving back toward that direction, but we're not going to get all the way there in 2023. And some of this is structural. If you think about, you know, Crisco, for example, you know, that business is generally speaking generating the profit dollars of the business that we bought, but sales are $100 million higher, right? And so we need to think about that. What that just does from an algebra standpoint to your margins, it's going to compress them, just structural compression, even though you're generating the same amount of profit margin dollars. We have that same impact across our portfolio, but in a smaller way in some of the brands and categories where you had to take price, but maybe not as much price to protect dollars.
spk21: And then thanks for the last question. The easiest way to say that, Andrew, is that we expect to recover – most of the gross profit dollars that we had in 2021 in 23 with our pricing actions. But obviously as Bruce said, margins won't be the same because you've got a higher sales base that you're comparing the gross profit dollars to. Yep. That's helpful.
spk03: And the last thing, Casey, you know, I think as you started to go through this more significant sort of portfolio review, we know it's resulted in a couple of a couple of smaller sort of divestitures so far, but there is one larger asset green giant, and frozen that you kind of said, you know, you need to start to get a little more clarity on whether that's a business that you're going to sort of be, you know, all in on or all out on. And if you're going to be all in on it, it probably would require, you know, gaining more scale. But either way, you had to improve the profitability first before you could kind of make that call. So I guess I'm trying to get a sense of where we are in that sort of journey of discovery. If you've got new thoughts one way or the other on how you're leaning and and where that temperature state and that business sort of fits into the portfolio going forward. Thanks so much.
spk21: Yeah, I mean, the portfolio reshaping, I think, is, you know, an exercise where we are trying to, you know, we're trying to obviously improve the margin profile of our core business and also the growth prospects of the core business and also platforms where we think we can acquire and build value. So the jury, I mean, the jury to me is not out on Green Giant. We're still working to improve the business. We're still evaluating, you know, longer term, do we want to scale up in Frozen? But it's an active discussion that we're having internally. There are other things in our portfolio reshaping that we are working on as well. So, you know, more to come on that. I can't really talk about it in a lot of detail, but we are actively working on the portfolio reshaping to set, you know, kind of our platforms for the future. Thank you.
spk14: Thank you.
spk10: The next question we have is from Hale Holden from Barclays. Please go ahead.
spk05: Thank you. I had just two quick questions. Can you give us the variable rate pay down that occurred after the back of nature sale or the dollar amount loss?
spk22: Yeah, we've paid down $60 million to the term loan so far this year.
spk05: Great. Thank you, Bruce. And the second question is, as you look across the portfolio and you think about the volume versus pricing versus elasticity kind of discussion, which segments or brands, you know, you're watching most closely, do you think that are most susceptible to private label where you may not have that pricing or may have to adjust pricing over time?
spk22: I think it's a combination. I mean, clearly when you think about something like Green Giant on the canned side, That's an area where we're always watching market share, seeing what the branded competitors are doing and what the private label competitors are doing. That's less of a value-add category, so there's definitely some sensitivity there, and that's an area where we took price. So that's one area for one reason. Crisco is obviously another one. It's the brand in vegetable oil, and it's the only brand in shortening. But we still have to watch what's going on because the amount of prices from the increase standpoint was so great. So there's two examples on different sides of the coin. One positioning, you know, it's commodity category. The other one, it is the brand, but there was a lot of pricing. And you have that across the portfolio to a lesser degree with everything.
spk06: Great. Thank you very much. I appreciate it.
spk10: The next question we have is from David Palmer from Evercore ISI. Please go ahead.
spk09: Thanks. Just a quick question on shipments versus consumption. Would you expect the spread to be a positive shipment versus consumption in the first quarter as well?
spk21: Well, I think what you're probably seeing in the consumption data in the first quarter is that, you know, the effect of Omicron shutdowns. I mean, our offices, you know, for example, last January were kind of partially closed. We're seeing, you know, a hard comparison to the January, early February time period last year. And, you know, we will eventually shift to that consumption profile. You know, we are seeing our consumption trends improve now in the back half of February as we've kind of come through that Omicron period. kind of stay-at-home office closure environment last year in January, early February. So I think, like I said, I think we'll have a little bit of a tougher comp in the early part of first quarter, but we expect it will get better when pricing will flow through more on a positive side in the back half of the quarter.
spk09: Well, I mean, in the fourth quarter, your shipments were ahead of consumption levels, Is that a dynamic you would expect in the first quarter as well?
spk21: No. I'm sorry, I thought you were asking about the first quarter. In the fourth quarter, remember last year we had trouble shipping towards the end of the fourth quarter because of Omicron call-outs in our distribution system. We had carrier call-outs, warehouse call-outs. So we had trouble shipping towards the end of Q4 in 2021. We did not have any trouble shipping towards the end of the quarter in 2022. So basically our supply and distribution network was fully functioning. So I think that's the main difference, why you have a slight difference in consumption and shipments in Q4. But consumption was still reasonably strong in Q4 overall.
spk09: And you don't have any of that Omicron disruption from last year, right?
spk21: What we saw was a surge in demand in January and early February from the Omicron disruption. So it moved from kind of a supply problem to an elevated demand with stay-at-home consumption of food. So it moved to a demand issue. So we had elevated demand last year. It was less of a supply and shipment problem. We had service problems in the early part of Q1 last year, but we also had elevated demand going on.
spk09: Yeah. No, I'm just wondering, because of those disruptions last year, if your shipments would be above consumption this year, but it doesn't sound like that's clearly going to be the case.
spk21: I think we'll be shipping closer to consumption profiles this year because you don't have the disruption going on.
spk09: Yep. I just wanted to follow up on price elasticity for 23. Do you expect price elasticity levels to remain similar to the recent levels that we are witnessing in the measured channel data? And I'll just wrap in another question about price elasticity in there. What are some of the things that we're seeing going on when we look at green giant and spices? It looks like the price elasticity is much higher. in those parts of the business? Maybe is there something temporary that's causing that? Any thoughts about your price elasticity levels going forward? Thanks.
spk21: Yeah, I think it obviously varies by category. Spice and seasonings, I think, is less of an impact of price elasticity. Normally, we still have a hangover from the first half of 2021. where we had service issues, so we are kind of rebuilding some of the distribution that we couldn't supply in that period. So I don't really think that's an elasticity issue. I do believe that we are forecasting slightly higher elasticities on what I'd call the commodity businesses, number one, Crisco and Green Giant, particularly on the canned side, but also on some of the frozen vegetable side. We expect velocities will be below one, but a little bit higher than what we've seen in the past as consumers become more sensitive to the higher prices. And even if the percentage spread to private label is the same, the absolute dollar spread is growing a little bit. So, you know, we are expecting a little bit higher last issues, but still expect to see some positive pricing benefit, you know, in 2023, if that helps.
spk09: Yeah, but was there anything particular happening with Green Giant or Spices where you were taking outsized measures on pricing that was out of step with the category that was causing what we're seeing here?
spk22: I mean, we don't think so in Spices. And again, Spice had a great fourth quarter, had a slow start to the year in 2022, which for us at least was a lot more about supply chain I know that there is a large public company that sometimes has different explanations for their trends, but they have a little bit different business than us. Certainly 2021 was a phenomenal year for Spices. It was challenging to lap that in 2022. Those challenges probably were exaggerated for us in the first half, even the first three quarters of the year, but a pretty strong finish there. And 100%, Green Giant Canned is a very different business than Spice's. It's a much more commoditized category.
spk21: Remember, our Spice's business is not really in A to Z. It's more in blends and other things. I don't believe that it was last year. As I said, we had some supply problems in the first and second quarters of last year that we had difficulty supplying and we had to kind of rebuild distribution in which you saw kind of happening in the fourth quarter. So I think it's more around our supply and service, you know, portfolio, I mean, excuse me, performance, and recovering all of that lost distribution and getting back in business, which is what you're seeing happening now in Q4, and we project into 23.
spk14: Thank you.
spk10: The next question we have is from Michael Lavery from Piper Sandler. Please go ahead.
spk02: Thank you. Good afternoon. Hey, Michael. With the elevated SNAP benefits rolling off, I guess, technically tomorrow, can you give a sense of how you've factored that into your thinking on guidance? And maybe even specifically, are there any cases where consumers trading down might give you a benefit, and of course others where it'd be a headwind. Just any, maybe potentially puts and takes, but how that's factored into your thinking on the year.
spk22: Yeah, I mean, to be honest, we haven't historically really tried to tie SNAP benefits into our forecasts. It's a little bit tricky for us. I know people follow it. It's just not something that we've historically commented on.
spk21: But I think, Nick, we are expecting more price sensitivity in kind of lower and middle income consumer base next year, which is why we factored up some of our elasticities on our more commodity-driven businesses, where we have higher private label penetration. So I think we factored in some element of that that you're talking about, but it's more around overall price sensitivity and a little bit higher elasticity from what we saw in 2022.
spk02: Okay, that's helpful. And just when you touched on close to the end of the prepared remarks, the potential for some trade optimization, can you unpack a little bit how that might look and how difficult that may or may not be to achieve and what potentially share implications could be?
spk21: I think this is an ongoing efficiency and productivity effort that we've been working on for the past year, which is just to take a look at our trade performance and ensure that we're getting appropriate returns for it and moving towards our better promotion events. We're not reducing trade spending in 2023 as kind of on a percentage basis, but we're trying to optimize the performance of it to make sure that we're producing stronger returns and stronger lifts on the events that we do run with customers. Historically, we haven't, in my opinion, we have not done enough post-promotion analysis to really understand that. to adjust our plans and to drive efficiency. So I don't think you're going to see a reduction in our trade spend. You're going to see an optimization that hopefully will drive better performance and lift off the spending that we do have.
spk02: Could there be upside to trade spending, just given that most of the industry is still below pre-COVID levels?
spk21: I mean, we've brought trade spending back to get closer to pre-COVID levels. Look, I think the upside to me is if we can get stronger event performance with the spending that we're doing by readjusting the way we're spending our money and what types of events and vehicles we're using. So that to me is the upside of trying to get a more efficient trade spend program and optimizing the spending performance.
spk11: Okay. That's helpful. Thank you.
spk10: Thank you. The next question we have is from Robin Moscow from Credit Suisse. Please go ahead.
spk08: Rob, happy birthday. Oh, that's very kind of you and heartwarming. Appreciate it, Bruce. What better way to spend it, right? And now my question. What gives you visibility on pricing on Crisco products? going lower in the back half? Is it because it's lower now and then you know it's going to, you're going to be able to flow that through in the back half? Or is it just kind of, you just think vegetable oil prices are really high and they have to go lower? And then I had a follow-up.
spk21: Yeah, I think it's really, look, we don't know, Rob. We don't know for certain. But the reason why we're saying that is we saw prices, if you just think about the stock the market, you know, we were, we had prices above 80 cents a pound on soybean oil, you know, last year moderating down to probably 70 cents a pound as we were kind of going into the fourth quarter. Now we're down in kind of the low to mid sixties and price per pound. And just our intelligence says we expect it to kind of stay there or maybe go a little bit lower, which means that as we get into the back half, where we were experiencing those big pricing moves last year, we think it will be probably below where the market was last year in the third and fourth quarters in particular.
spk08: Okay. And then I wanted to know about your CapEx guide. It's really pretty low. It's really no different than it was in 2019, right? And at the Cagney Conference, we heard a lot about companies investing in CapEx, not just for capacity, but also to automate and digitize their supply chains, put in more up-to-date equipment to gain efficiencies, and I think just keep up with a more volatile demand environment. Are you concerned that you know, that your supply chain may not be keeping up with your peers that are making these investments?
spk22: So I think the couple pieces that you have to remember is call it roughly 50% or so of our business is made through co-packers or contract manufacturers. And so there is a little bit less probably demand from a percentage of sales, if you want to think about it that way, from our factories. And then when you think about our CapEx spending over time, Fairpoint, it's similar in dollar terms to where we were probably 2018, 2019. We were in the process back then of implementing the JDE ERP systems, and so there was a couple years of elevated spend that was probably plus $10 million annually to get that done. And so that going away allowed us to kind of continue to spend a comparable dollar amount, but probably more of those projects in line with what you're thinking about Even kind of 2021, parts of 22, we still had pretty large spend on the projects that we did around Ortega, both from a taco shell and a taco sauce, where we increased some capacity there. And so there are examples of what you're talking about. I don't disagree with your comment other than there are some offsets to it with regards to this year potentially not having a big spend project like JDE or a new taco shell line.
spk21: I would say that our capital is shifting from the ERP implementation to what we're doing with capacity additions. This coming year, we will be more focused on kind of BI software enhancements, also planning software enhancements, planning systems. I mean, we see a big opportunity to improve the effectiveness of our supply operations, our planning operations, and pulling down inventory levels and other things. So that's becoming a larger focus of where we're shifting our time and attention from a capital and upgrade standpoint.
spk14: Okay. Very good. Thank you. Thanks.
spk10: The next question we have is from Rob Dickinson from Jefferies. Please go ahead.
spk04: Great. Thanks so much. Just a clarification question on Q1. Bruce, I think I heard you say that Q1 would probably look like Q4. Was that comment made kind of with respect to actual absolute EBITDA dollars?
spk22: No, I'm sorry. I think you maybe misheard or I must have misspoken. So I think our expectation this year is Q1. Q1 and Q2 were pretty bad last year. Q2 was actually worse than Q1. And so when we think about lapping and getting some EBITDA recovery, first quarter and second quarter of 2023, we'll have some favorability built in just from lapping really bad performance from 2022. 2023 in the third quarter should be probably a little bit better than 22. but the degree probably won't be the same as the expectations around Q1 and Q2. And then Q4 in 23 probably look more similar to Q4 in 22, meaning kind of we had a pretty good fourth quarter, was relatively normal from a margin standpoint. I wouldn't expect material upside in fourth quarter of 2023, you know, when we go to lap it, but you should have some pretty good margin upside there. in the first quarter and particularly in the second quarter of this year.
spk04: Okay, got it. Perfect. And then I guess just to come back to this trade optimization strategy, you know, kind of vis-a-vis the share trends that we're seeing, you know, I realize that there's been some supply constraints in the system. I also realize what you said earlier, right? It's not that you're reducing that trade, but you're optimizing it. So I'm just curious, like, you know, as we think forward, you know, through 23, I'm assuming obviously the point of, you know, optimizing a trade program is kind of like regain share, at least in some of those categories. So maybe you just provide any additional color as to kind of how you're optimizing the trade and maybe if there are areas where you think might be a bit more supported relative to industry. That's it. Thanks.
spk21: Yeah, I think it's as simple as, you know, we – We want to make sure that we're promoting and that we're promoting at competitive levels in key windows. We want to make sure that we're getting the right lift from that spending. So on some of our businesses like Crisco and Green Giant, Ortega, we will be competitive in the key promotion windows and merchandising windows. We will adjust kind of our performance. based on what we're learning about where we're most effective. As I said before, I don't really expect that we're going to reduce promotion spending. We just want to make it more effective, and we want to drive efficiency and lift behind the existing spend that we're doing, and we want to make sure that we're promoting in the right places. And coming off this inflationary environment, we've got to make sure that we're at the right price points, competitive price points, relative to competition and private label, which is what we're doing. And we think we're well-planned to be able to do that in our key merchandising programs.
spk15: All right. Great. Thank you.
spk10: Thank you. The next question we have is from Kyru Martinson from Jefferies. Please go ahead.
spk23: Good afternoon. When you look at the pricing, are you getting pushback from the retailers specifically On where you are, is that part of the rationale for bringing down Crisco? And what are you seeing in terms of the competitive response on pricing?
spk21: I think actually we're in a good place with retailers on Crisco because we are treating it more like a commodity pricing situation. So we have told them on a quarterly basis we'll adjust pricing up and down on Crisco to reflect the actual market costs. And so we approach – we go to them once a quarter and say, here's the trailing oil costs and what we believe we need to be priced at based on that moving up or down. So we're treating it more like a pure commodity, like coffee, in the way we're managing with retailers. And they're quite – they're pretty happy with that because there's more transparency and visibility to what is driving the pricing decisions and how we're driving that. And they're doing the same thing with their private label and other things. So – It's just we've moved to that model in the last – at the very end of 22, so this is new. We weren't operating this way in 21, which is – or excuse me, for most of 2022. This is something that we are carrying into 2023 that will be a different way that we're managing pricing that I believe – will be a cleaner way of kind of moving our price up and down in a volatile soybean oil market that's moving kind of in correlation with oil and also allowing us to preserve our gross margin dollars at different price levels.
spk23: Okay. And then, I'm sorry if I missed it, did we say what the back-to-nature divestiture generated? And then when we look at the potential for additional assets for divestiture, What is the dollar range that we should be thinking about as we look at the overall capital structure and the maturities in 2025 and beyond?
spk22: Yeah, we actually didn't disclose what the dollar amount was for Back to Nature. It was a reasonable, not earth-shattering amount. I think going forward, hard to really predict what the dollar amount of future M&A activity is going to be. I think that the primary thing for us is shaping the portfolio. We're moving in the direction of business units, greater focus on what we're good at, greater focus on buying what we think we're good at, and potentially divesting things that are less core, and that'll be the primary driver. I think the additional benefit from that will be opportunistically reducing debt in a high interest rate environment I think is great, but really the primary driving force is gonna be portfolio optimization.
spk23: All right, then. Thank you very much. Appreciate it.
spk22: Yep.
spk10: Thank you. The next question we have is from Cara Casella from JPMorgan. Please go ahead.
spk18: Okay. This is – sorry, just a couple follow-ups. Just comments on your leverage target. You talked about getting to mid-sixes by the end of this year, right? Any sense for timing or trajectory of that, and does that include any potential additional further asset sales?
spk22: Yeah, I don't think we set an actual leveraged target for this year. You know, not really commenting on what the number is. We do expect to bring it down substantially. I mean, we've got a ratio that we need to be inside of, and we're going to work towards that. we have a plan to get there just organically, increasing EBITDA, paying down debt. That can be enhanced by any portfolio moves that result in divestitures. But again, we're not in a world where we're setting divestiture targets and an amount of proceeds that we expect to raise. That's not the expectation that we want to set for investors, and it's not how we're planning to run the business necessarily.
spk18: Okay, great. And then you mentioned on the Green Giant, self-stable product, the canned, that you exited another low-margin account. How much more of this is there to go, or are we at more of a base level where you're comfortable with the margin profile of the remaining green giant?
spk21: I don't think we have any other exits of kind of low-margin business on green giant. I mean, I think this was a particular – dollar channel account that we weren't making a lot of money yet that we exited last fall. But we don't have any other active accounts that were driving changes in our distribution profile. I mean, for the most part, we are focused on Green Giant on improving our profitability, improving our mix, improving the profitability of our new innovations coming into the market. That's been our primary focus. On the canned business, it's about, you know, maintaining, you know, stability in terms of our volume and margins on that business. We don't see the canned vegetable business as a place we're going to grow. We just want to maintain a stable margin profile and keep it steady. Okay, great. And then...
spk18: Within your sales guidance for the year, can you give us any more granularity in terms of which brands you expect to lead the growth versus those that are lapping tougher pricing? You mentioned Crisco passing through some of the pricing, the reduced oil costs. Any more granularity you can give into the thoughts behind guidance?
spk22: I don't think we typically give brand forecasts per se. I think certainly you would imagine to see things over time like spices and seasonings is in a higher growth rate category, and that's our expectation there. I'm not going to give a number on it. As we said earlier, when you think about Crisco, if we are in an environment where input costs come down and therefore pricing starts to normalize a little bit, hard to imagine that being a growth driver in a year where costs are going down and price comes down. Outside of that, really would hesitate to try to give you you know, actual numbers on a brand-by-brand basis.
spk18: Okay, that's great. And then just one last one. Retailer inventory levels. Any comments there? Are there any retailers that seem to be carrying a little bit more inventory? We've heard about retailers having to carry less because of the less need for safety stock. So just thoughts there.
spk21: We haven't seen any big adjustments in our retailer inventories. And you know, in the last several months. I mean, we've seen the typical pattern of their year-end. They kind of pull inventories down a little bit, but we haven't seen any kind of permanent or been told we have a permanent reduction in our stock levels.
spk17: Okay, great. Thank you.
spk10: Thank you. The final question we have is from Eric Lawson from Seaport Research. Please go ahead.
spk07: Yeah, thanks, guys. Thanks for squeezing me in. So no birthday wishes for me? Is today your birthday, man? No, it was two weeks ago, but it was close enough. Hey, happy belated birthday. All right. So thanks. I don't want you to feel unloved. I guess I'm two weeks older and that much two weeks wiser than maybe Rob, but you know who knows.
spk20: You said that, not us.
spk07: No, happy birthday, Rob, by the way. So anyway, my question is on cash. And so your third quarter is always your seasonally biggest build for working capital because of the vegetable pack and all that sort of thing. And it starts to come off pretty meaningfully in your fourth quarter. Yet when I look at your I don't know exactly what happened with inventories in the fourth quarter. I see your full year number is still up about 20%. And you used a little cash for networking capital in the fourth quarter this year, not as much as the year before. But, you know, do you have maybe some high-cost oil inventories you've got to work off here yet? Can you give me a feel for how the flow of your cash will be kind of For your first, maybe first quarter, second, maybe first half, second half, however you'd like to maybe characterize it.
spk22: You're talking 2023, not 2022, right? Correct, correct, 2023. So the overarching theme, both for 22 and 21, was input costs came up pretty significantly. We saw that margin compression. Obviously, we benefited from pricing, but that flowed through our inventories. And so you do have that seasonality where third quarter is always pretty rough. Fourth quarter is usually pretty good. This year's fourth quarter was pretty good, not as good as the prior year's fourth quarter, but it was pretty reasonable. But we've had two years in a row of over $100 million increases in inventory. We don't expect to have that phenomenon this year. We expect to have some favorability from a working capital standpoint. modest but favorability. And so working capital, instead of being a drain this year, should be a little bit of a benefit or at least mutual, which will make the whole cash from operations math be a lot better.
spk13: Okay.
spk22: Just imagine working capital or cash from operations, if you look at the last two years, just imagine on a full year basis those numbers being, you know, plus $100 million higher. because that's what the hurt was from an inventory standpoint.
spk07: Okay. And so your comment that it should be, you know, at least compare favorably this year, it's on a full year basis, and you're not, you won't, it's not necessarily a first or second half benefit. It's for, you're trying to characterize it as a full year. Okay.
spk14: All right. Less of the use of cash. Yeah. Okay. All right. Sounds good.
spk10: Thank you. Ladies and gentlemen, there are no further questions at this time. I would now like to turn the floor back over to Keith Keller for closing comments. Please go ahead, sir.
spk21: Thank you all for joining us today. We appreciate your attention. As we've talked, we had a good, strong fourth quarter, which showed recovery in our pricing and covering inflationary costs, and we look forward to kind of getting into fiscal year 23. Thank you.
spk14: Thank you, sir.
spk10: Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Disclaimer

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