B&G Foods, Inc.

Good day and welcome to the B&G Foods third quarter 2023 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 A.J. Schwab, Associate Corporate Strategy and Business Development for B&G Foods. A.J.?

Good afternoon and thank you for joining us. With me today are Casey Keller, our Chief Executive Officer, and Bruce Wacca, our Chief Financial Officer. You can access detailed financial information on the quarter in the earnings release we issued today, which is available at the investor relations section of BGfoods.com. Before we begin our formal remarks, I need to remind everyone that part of the discussion today includes forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer you to B&G Foods' most recent annual report on Form 10-K and subsequent SEC filings for more detailed discussion of the risks that could impact our company's future operating results and financial condition. B&G Foods undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information future events, or otherwise. We will also be making references on today's call to the non-GAAP financial measures, adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, and base business net sales. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release. Casey will begin the call with opening remarks and discuss various factors that affected our results, selected business highlights, and his thoughts concerning the outlook for the remainder of fiscal 2023. First, we'll then discuss our financial results for the third quarter 2023 and our guidance for fiscal 2023. I would now like to turn the call over to Casey.

Good afternoon. Thank you, AJ. And thank you all for joining us today for our third quarter 2023 earnings call. B&G's third quarter results continued strong margin recovery. With adjusted EBITDA, there's a percentage of net sales increasing 80 basis points versus last year to 16%. Gross profit as a percentage of net sales, excluding items affecting comparability, increased 230 basis points versus last year to 22.7%, demonstrating continuing recovery of higher inflationary costs through pricing and productivity efforts. During the third quarter, we lapped most of the pricing actions taken in 2022. Turning to sales performance, base business net sales, which excludes the divested back-to-nature business, were down 3% versus last year, but slightly up or roughly flat without the Crisco brand, where we proactively reduced pricing to reflect lower soybean oil commodity costs while maintaining gross profits. Overall, many of our brands delivered solid performance despite the uncertain environment of higher pricing and pandemic normalization. The exception was the Green Giant business across frozen and canned vegetables, which was down significantly versus last year. Excluding Green Giant and Crisco, the remaining businesses increased net sales plus 4.7% versus third quarter of last year. Some more detail on the business performance across brands and categories. Spices and seasonings. The high margin spices and seasonings portfolio increased net sales plus 6.1% versus last year. Trends were particularly strong on the food service and members mark, Sam's label business, which largely serve out of home and small business customers. The core retail branded trends, Dash, Weber, Spice Islands, et cetera, were mixed, impacted by temporary service and production issues in our Ankeny spices and seasonings factory, which have now been resolved. We also launched new seasoning and grilling blends under the Buffalo Trace, Fireball, and Southern Comfort brands in select customers, which are performing very well in initial distribution. Crisco. The Crisco net sales decline resulted from a 15% list price reduction in August, consistent with our commodity pricing model on the brand. Soybean oil costs are down significantly, about 20 cents per pound versus Q3 last year, which we passed through to consumers while maintaining gross profit dollars. Crisco oil key bottle size unit price is now largely below the key $5 and $6 thresholds in market, and we are seeing healthy unit volume increases in recent week's scanner data. Green Giant. Green Giant canned and frozen vegetable trends were the weakest in the portfolio during Q3. Canned vegetables price promotion activity has increased with excess industry-wide supply prior to the new season pack, and we have increased trade spend to remain competitive. The frozen vegetable category has been impacted by a compression of price differential between frozen and fresh vegetables as the result of improved fresh supply and cost. Although the Green Giant frozen portfolio has improved product margins and mix, the rice vegetable SKUs face increased competition and price pressure from private label entrants. Supply and service. On a company-wide basis, customer service and fill rates continue to improve, averaging 97% during the quarter. The one exception was spices and seasonings with some temporary disruption. We are on track to deliver 97% to 98% CFR, our long-term target, before year-end. Inventory. Turning to inventory, as of the end of the third quarter compared to the end of the third quarter of last year, total inventory decreased by $79 million to $726 million before the impact of the reclassification to assets held for sale and partial impairment of green giant U.S. shelf stable inventory. We are well on track to deliver lower inventories year on year at the end of Q4. The major drivers are unit deficiencies, lower soybean oil costs, and a smaller seasonal pack on the LeSueur shelf table versus last fall. Cash flow. Cash generation continues to be strong in Q3. Net cash from operations was $23.3 million in Q3, increasing from negative $59.5 million or use of cash last year. with year-to-date net cash from operations of $155.7 million. Proforma adjusted net leverage was 6.52 times, down from 6.74 times at the end of Q2. We are on track to continue to reduce our leverage ratio by the end of 2023, driven by adjusted EBITDA recovery, lower working capital inventory needs, and debt reduction from available cash flow. Year-to-date, we have reduced net debt by over $210 million. For the full year, we remain on track to deliver within the previously communicated guidance range of adjusted EBITDA between $310 to $330 million, inclusive of the investor of the Green Giant U.S. Can product line. For fiscal year net sales, we are revising guidance to remove November to December Green Giant U.S. Can sales, recognize lower critical oil pricing, as well as reflect a slower recovery on the Green Giant frozen business. Bruce will provide more specifics on sales guidance. Finally, pertaining to Green Giant, we announced the sale and divestiture of the U.S. Green Giant canned vegetable product line to Seneca Foods earlier today. The sale does not include Green Giant Frozen, Green Giant Canada, or the Le Sur brand, and we are retaining the Green Giant trademarks, which we will license to Seneca for use with the divested product line. This divestiture is a critical step in our efforts to focus the portfolio on categories and brands where we can drive valuation growth. consistent with our choices, resources, and capabilities. Canned vegetables are a mature category with high working capital needs. The seasonal crop inventory is packed and held for the entire year. The canned business required us to increase debt to finance seasonal inventory build with almost no synergies with the green giant frozen portfolio. We expect that the green giant U.S. canned vegetable divestiture will modestly increase overall margins and modestly reduce leverage. Beyond this transaction, we continue to evaluate existing businesses that have lower margin and cash flow, higher working capital complexity, or do not fit with our core capabilities and business unit structure. The divestitures of Back to Nature and Green Giant U.S. canned vegetables are critical steps on that journey. We have a target list being actively worked to reshape and focus the portfolio with the expectation that the proceeds from any divestitures would primarily be used to reduce long-term debt. Thank you, and I will now turn the call over to Bruce for more detail on the quarterly performance and outlook for the year.