B&G Foods, Inc.

Good day, and welcome to the B&G Foods third quarter 2024 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, Senior 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 a more detailed discussion of the risks that could impact our company's future operating results and financial condition. B&G Foods undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. We will also be making references on today's call to the non-GAAP financial measures, adjusted EBITDA, segment adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, adjusted gross profit, adjusted gross profit percentage, 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 2024. Bruce will then discuss our financial results for the third quarter of 2024 and our guidance for the remainder of fiscal 2024. I would now like to turn the call over to Casey.

Good afternoon. Thank you, AJ, and thank you all for joining us today, Election Day, for our third quarter 2024 earnings call. Third quarter net sales of $461.1 million and adjusted EBITDA of $70.4 million were somewhat below expectations. Excluding Crisco, whose net sales were negatively impacted by lower net pricing to reflect a decrease in soybean oil costs, base business net sales decreased by approximately 3% compared to the year-ago period. Some of the key factors impacting 33rd quarter sales trends. First, base business trends on most of the B&G Foods portfolio have been slower to recover than expected, consistent with the center store packaged foods industry. We have not seen much improvement relative to the first half, with consumers adjusting their purchasing patterns in the wake of high food inflation. The exception has been our spices and flavor solutions business that has shown positive trends, plus 2.6% in Q3, with the growth of fresh produce and proteins in the perimeter of the store, driven by a narrowing of the relative pricing of fresh to frozen and packaged foods in the last year. During Q3, and particularly in the July period, major retail customers lowered their warehouse and shelf inventories across our categories by several days to a week. We estimate that impact was 1% lower net sales in the quarter. Food service sales, roughly 15% of total B&G foods, have continued to be down 2% to 3%, but generally reflect overall restaurant industry traffic patterns. We have experienced some increased competitive activity in a few categories. In vegetable oil, Weston has priced aggressively over the last several months to protect and in some cases rebuild distribution. In the Mexican category, Ortega, as well as the old El Paso brand, have been impacted by increased activity from the Taco Bell brand. For the third quarter, adjusted EBITDA of $70.4 million decreased by $10 million compared to the third quarter of 2023. The Green Giant U.S. shelf-stable divestiture represented approximately $2 million of the year-over-year decline, with foreign exchange from Mexico operations on the Green Giant frozen business representing roughly another $1.5 million. One exchange from the peso has been a drag on costs and profits, depressing green giant segment adjusted EBITDA by $5 to $6 million year-to-date. Total B&G Foods adjusted EBITDA as a percentage of net sales for the third quarter was 15.3%, down from the prior year period. During Q3, we continued to see only isolated inflation in some categories. e.g. pepper, garlic, etc., and some modest favorability in transportation and warehousing costs versus last year. In terms of outlook, we are revising guidance to reflect the reality of a slower recovery in center store trends and the consumer environment. Bruce will cover more detailed guidance for the fiscal year 2024. Moving forward, we expect to see gradual recovery and stabilization in fiscal year 2025, with sequential improvement between the first and second halves of the year. Segment reporting. B&G Foods continues to report results by operating segments, providing greater visibility into the performance of the company's four operating business units. Bruce will provide more detail, but I will touch on a few top lines across the segments. Spices and flavor solutions. Third quarter net sales increased 2.6% versus the third quarter of fiscal year 23, aided by the growth of the fresh fruit parameter in grocery. This segment represents B&G Foods' highest segment-adjusted EBITDA as a percentage of net sales. Segment-adjusted EBITDA was down modestly behind the timing of some food service trade spend increases in certain raw material costs and product mix. We also launched a new line of licensed seasoning and grilling blends under the Four Sixes brand, the ranch featured in the Yellowstone television franchise. Meals. The meals segment Q3 net sales decreased by 3.9% versus last year. The largest driver was the Ortega brand, impacted by competitive pressure from increased activity by the Taco Bell brand, although we have a strong pipeline of channel and product innovation coming. Skinny girl salad dressings continued high growth behind new items, increased capacity, and expanded distribution. Specialty. The specialty segment Q3 net sales declined by 9.9% versus last year. The Crisco brand was down behind lower soybean oil pricing versus last year, reflected through to customers in our pricing model. We also experienced some delays in getting lower pricing reflected in some customers, which has been rectified. Western also fielded more aggressive pricing and promotion during the quarter. Specially segment-adjusted EBITDA was down less than net sales, 6.2%, due to lower soybean oil costs. Frozen and vegetables. The frozen and vegetables business unit net sales, excluding the impact of the U.S. green giant canned investor, were down 1.7% versus last year. an improvement from prior quarter trends, and reflecting some overall category softness in frozen vegetables. Excluding the divested green giant U.S. shelf-stable business and the impact of foreign exchange from the peso, segment-adjusted EBITDA for frozen vegetables was positive for the quarter. This fall, we have launched a strong innovation pipeline, including a number of premium sides. Portfolio Shaping B&G Foods remains committed to reshaping and restructuring our portfolio to sharpen focus, improve margins and cash flow, and maximize future value creation. This is a high priority for the company and critical to our future strategic direction and risk profile. The divestiture of the Green Giant U.S. canned vegetable business was completed last fall following the State Act of Nature brand in January 2023. We continue to review our remaining portfolio for possible divestiture of non-core assets, including the possible divestiture and sale of some or all of the assets in the frozen and vegetables business unit. Green Giant remains a strong brand with broad awareness and distribution, and the frozen vegetable category is on trend with health and dietary trends. However, it may not be the right fit with B&G Foods' focus and capabilities. particularly since there are no plans to add more assets in the frozen portfolio, given the opportunities in our core shelf-stable businesses and overall capital constraints. In anticipation of questions we often receive during the Q&A portion of these earnings calls, I remind you that our company policy is to not comment on any specific acquisition or divestiture opportunities unless and until we reach an agreement with a counterparty. As such, other than the general statements we have made regarding the review of possible divesters and our commitment to reshape and restructure our portfolio, we will not have further comment at this time regarding specific divestor opportunities or possible timing. Thank you, and I will now turn the call over to Bruce for more detail on the quarterly performance and outlook for the remainder of the year. Thank you, Casey.

Good afternoon, everyone. Thank you for joining us today. We will try to be efficient with everyone's time so that you can all get out to vote this evening if you haven't done so already. I will start with a quick housekeeping item. Last year's third quarter results included the Green Giant U.S. Shelf Stable product line, which we sold to Seneca last November. Green Giant U.S. Shelf Stable contributed approximately $20.3 million of net sales and approximately $2 million and contribution to last year's third quarter results. In the third quarter of 2024, we generated $461.1 million in net sales, $70.4 million in adjusted EBITDA. Adjusted EBITDA is a percentage of net sales, 13.3%, and 13 cents in adjusted diluted earnings per share. Base business net sales, which exclude the green giant U.S. shelf-stable product line, decreased by $21.3 million, or 4.4%, in the third quarter of 2024 compared to the third quarter of 2023. The decline in base business net sales is comparable to our consumption data, as per Nielsen, which showed a decline of approximately 5% for the 13 weeks ended September 28, 2024. $22.6 million of the decline in base business net sales, or 4.7 percentage points of the decline, was driven by lower volumes, and $.4 million, or 0.1 percentage points, were driven by the negative impact of foreign currency. These impacts were offset in part by the benefit of $1.7 million, or 0.4 percentage points, of positive net price and product mix. Net sales for our Crisco brand decreased by $9.4 million for the third quarter of 2024 as compared to the third quarter of 2023, largely as a result of a commodity pricing model for the brand, which resulted in a net pricing decline of approximately $3.5 million to reflect lower soybean oil commodity costs, coupled with a decrease in volume of approximately $5.9 million. Excluding the Crisco brand, base business net sales decreased by $11.9 million, or 3% in the third quarter of 2024 compared to the third quarter of 2023. Gross profit was $102.3 million for the third quarter of 2024, or 22.2% of net sales. Adjusted gross profit, which excludes the negative impact of $0.1 million of acquisition divestiture-related expenses and non-recurring expenses included in cost of goods sold during the third quarter of 2024, was $102.4 million, or 22.2% of net sales. Gross profit... Excuse me. Gross profit... was $113.8 million for the third quarter of 2023, or 22.6% of net sales. Adjusted gross profit, which excludes the negative impact of $0.3 million of acquisition divestiture-related expenses and non-recurring expenses included in the cost of goods sold during the third quarter of 2023, was $114.1 million, or 22.7% of net sales. While we are continuing to see input cost inflation with regards to raw material costs across our basket of inputs and in our factories, the cost increases have continued to be mostly modest thus far this year. However, we are still seeing elevated costs in some categories such as black pepper, garlic, olive oil, and tomatoes. And foreign currency is negatively impacting our costs at our green giant manufacturing facility in Mexico. Helping to mitigate those cost increases are continued favorability in some areas that saw the most extreme input cost inflation in 2022 and 2023, such as soybean oil, cans, and logistics, as well as through our continuous improvement productivity efforts and cost savings initiatives in our factories. Selling, general, and administrative expenses decreased by $2.2 million or 4.6% to $46 million for the third quarter of 2024, from $48.2 million for the third quarter of 2023. The decrease was composed of decreases in consumer marketing expenses of $1.2 million, warehouses expenses of $.9 million, selling expenses of $.8 million, and acquisition divestiture-related and non-recurring expenses of $.6 million. partially offset by an increase in general and administrative costs of $1.3 million. Expressed as a percentage of net sales, selling general and administrative expenses increased by approximately 40 basis points to 10% for the third quarter of 2024 as compared to 9.6% for the third quarter of 2023. As I mentioned earlier, we generated approximately $70.4 million of adjusted EBITDA, or 15.3% of net sales in the third quarter of 2024, compared to $80.4 million, or 16%, in the third quarter of 2023. Approximately $2 million of the decrease in adjusted EBITDA for the quarter was the result of the divestiture of the Green Giant U.S. shelf-stable product line, which we sold last fall. An additional $1.5 million or so of the adjusted EBITDA decline resulted from the negative impact of foreign currency relative to the impact in the year-ago period on our cost of goods sold for the portion of our green giant frozen vegetables that are produced in our manufacturing facility in Mexico. The remainder of the decline was largely driven by the decline in our net sales and a modest increase in our raw material costs. Net interest expense was $42.2 million in the third quarter of 2024 compared to $35.9 million in the third quarter of 2023. The increase was primarily driven by approximately $3.1 million of charges related to our recent financing, as well as the impact of higher interest rates on our long-term debt during the third quarter of 2024 compared to the third quarter of 2023. These increases were offset in part due to lower average debt outstanding in the quarter relative to the prior year quarter. Depreciation and amortization was $17.2 million in the third quarter of 2024, which is in line with the $17.3 million in the third quarter of last year. We had net income $7.5 million or nine cents per diluted share an adjusted net income of $10.1 million, or 13 cents per diluted share, in the third quarter of 2024. In the third quarter of 2023, we had a net loss of $82.7 million, or $1.11 per diluted share, an adjusted net income of $20.5 million, or 27 cents per adjusted diluted share. Adjustments to our EBITDA and our net income are described further in our earnings release. I would now like to touch on the results by business unit. Net sales for specialty decreased by $17.7 million or 9.9% in the third quarter of 2024 to $161 million from $178.7 million in the third quarter of 2023. The decrease was primarily due to lower CRISCO pricing, driven by decreased commodity costs, coupled with modest declines in volumes across the business unit in the aggregate. Specialty segment adjusted EBITDA decreased by $2.7 million, or 6.2% in the third quarter of 2024, compared to the third quarter of 2023. Net sales for meals decreased by $4.5 million or 3.9% in the third quarter of 2024 to $111.6 million from $116.1 million for the third quarter of 2023. The decrease was primarily due to lower volumes across the business unit, partially offset by a modest increase in net pricing and product mix. Meal segment adjusted EBITDA decreased by $2.4 million or 9.5% compared to the third quarter of 2023. Frozen and vegetable net sales, excluding the impact of the Green Giant U.S. shelf-stable product line divestiture, were down by $1.6 million, or 1.7% versus the prior year. Segment-adjusted EBITDA decreased by $3.2 million compared to the third quarter of 2023. Approximately $2 million of the decline was due to the divestiture of the Green Giant U.S. Shell Stable product line and an additional $1.5 million or so from the negative impact of foreign currency relative to the prior year period on our cost of goods sold for the portion of our Green Giant frozen vegetable products produced at our manufacturing facility in Mexico. Excluding these amounts, segment-adjusted EBITDA increased marginally in the third quarter as compared to the prior year. Net sales for spices and flavor solutions increased by $2.5 million, or 2.6%, in the third quarter of 2024 to $99.3 million from $96.8 million in the third quarter of 2023. The increase was primarily due to higher volumes across the business unit. Spices and flavor solutions segment adjusted EBITDA decreased by $1.6 million, or 5.2%, in the third quarter of 2024 compared to the third quarter of 2023. The decrease in segment-adjusted EBITDA was largely driven by a combination of an increase in trade spending and product mix and increases in raw material costs such as black pepper and garlic. Now, moving on to our balance sheet. As you likely saw, we continue to update our balance sheet. Following the refinancing of our revolver, our term loan B, and an add-on senior secured note offering this summer, in October 2024, shortly after the end of the third quarter, we then redeemed the remaining $265 million of senior notes due April 2025. Following these moves, we no longer have any near-term maturities, with our closest maturity being our senior notes due 2027. Additionally, we now have just over 35% of our long-term debt tied to floating rates or SOFR. A 50 basis point decrease in rates would reduce our interest expense by approximately $3.5 to $4 million on an annualized rate. Similarly, a 100 basis point reduction would be expected to reduce our interest expense by $7 to $8 million. Further details regarding the refinancing transactions have previously been disclosed by press release and 8K filings and are described in the footnotes to the financial statements that we filed earlier today as part of our 10Q. And finally, as noted in our earnings press release, we are revising our fiscal 2024 guidance to $1.92 billion to $1.95 billion for net sales, $295 to $305 million for adjusted EBITDA, and 67 cents to 77 cents for adjusted diluted earnings per share. At the midpoint, our net sales guidance is based on our first three quarters of 2024 net sales of approximately $1.381 billion and projected base business net sales decline of approximately 2% to 3% for the final quarter of 2024, which is a similar trend to what we saw in the third quarter. We believe that the revised guidance better reflects the continued industry-wide challenges in consumer activity, which has dampened volumes in both retail consumption and food service channels. As a reminder, the Green Giant U.S. shelf-stable business line that we sold last year contributed approximately $15.9 million in net sales to last year's fourth quarter. Additionally, we expect, for full year 2024, Interest expense of $152.5 million to $157.5 million, including cash interest expense of $145.5 million to $150.5 million. Depreciation expense of $47.5 to $52.5 million. Amortization expense of $20 to $22 million. An effective tax rate of 26% to 27%. and CapEx of $30 to $35 million. And while we are not providing guidance for fiscal 2025 at this point, we do expect trends to gradually improve and stabilize in the first half of 2025 as we lap the consumer reaction to higher prices. Now I will turn the call back over to Casey for further remarks.

Thank you, Bruce. In closing, B&G Foods is laser-focused on the few critical priorities. First, improving the base business net sales trends of the core business to the long-term objective of plus 1% to 2%. Two, reshaping the portfolio for future growth, stability, higher margins in cash flow, as well as structuring key platforms for future acquisition growth. Third, reducing leverage below 5.5 times through divestitures and excess cash flow to facilitate strategic acquisitions in the future. This concludes our remarks, and now we would like to begin the Q&A portion of our call. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing the star key. And our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Great. Thanks. Good afternoon, Bruce and Casey. Hey, Andrew. Hey, Andrew. Maybe to start off, I recall that in the second quarter, I think sales results came in better than the consumption data would have implied. And I think you chalked it up to sort of better results at the time in untracked channels and Canada. And now, obviously, you talked a bit about destocking. That was a one-point headwind to base business sales. I guess in looking back, do you think there was some sort of inventory stocking that might have occurred in the second quarter by shipping ahead of sort of consumption? Or was that not really a factor, do you think?

So just as a reminder, we're probably 75% or so, you know, U.S. traditional grocery stores. maybe a little bit less than that, but we've got Canadian sales and we've got our food service and our industrial business. In our first quarter, we had a little bit, we called out food service and we called out some of that was timing. We saw some of that swing into the second quarter as a benefit. And so the first quarter and second quarter kind of made sense. Third quarter, I think there is, Casey alluded to it, we saw some of our key inventory key customers, you know, from what we've been told, took inventory down. We think we saw that in July and it impacted the quarter for sure.

We could read, you know, warehouse and inventories and polls, so we kind of know what's going on. And, you know, that impact, you know, I think you probably heard it from others, but we definitely saw that, you know, predominantly in July, but even a little bit in August. I mean, relative to consumption, you know, You know, as Bruce said, really, we're less than 70% you can track in our consumption. There's a lot of other moving parts around Canada, food service, industrial, untracked channels. So it's really hard to pinpoint that number to our overall total. So I just, I mean, I would just, you know, just kind of take that as a, Take that as a directional indicator, but not really you can't match it up and kind of add the different pieces together to get the total, if that helps, Andrew.

Yeah, I appreciate it. And then your comments on looking for the business to sequentially improve and stabilize in the first half, certainly not inconsistent, right, with others that have made comments on next year being a below-algorithm sort of growth year. But I was wondering if there were any other actions, maybe on the cost side perhaps, that you could take or are taking to sort of blunt the weaker sales for a while, just given where leverage stands and things of that nature?

Yeah, I mean, we're attacking costs in a couple different ways. So first I would say we have active productivity efforts to help us kind of drive margin improvement, cover inflation, and also offset any weakness in the portfolio. So that and those productivity efforts are ramping up. They will be higher next year, probably closer to 3%. you know, of net sales or 3% of COGS in terms of our overall efforts. You saw we are effectively reducing SG&A expenses in a quarter, so we have, you know, an effort and some focus on how do we reduce our kind of, you know, overhead costs and our fixed costs, you know, given the lower sales. I would say, Andrew, the biggest thing that we, you know, are looking at is concurrent with the vestiges. We will do some restructuring activity in our cost profile to make sure that as we divest businesses, we look not only to take out proportional costs, but also ways to get more efficient with a more focused portfolio. So that's probably one of the biggest things that we've already started evaluating.

Last quick thing would be, I think you mentioned that fourth quarter, probably a similar base business trend to what we saw in the third quarter. And I guess, you know, certainly I think a lot of food companies are hoping, anyway, we'll have to see how it plays out, to at least continue to see some sequential improvement as we move through the sort of final quarter of the calendar year. I'm just curious why maybe you're just trying to be thoughtful and prudent about your expectations, but why we wouldn't expect to at least see some continued sequential improvement in the environment.

Thanks so much. We're expecting some, but, you know, not that much. And it's mostly prudence because every time we believe that maybe we're lapping some of these things, it's probably taking longer in the recovery process. So I think, you know, we said the base business net sales were down, you know, X Crisco pricing impact, X the Green Giant investor are down 3%. In Q3, we're projecting between minus 2% and minus 3% in Q4, so a little bit of improvement, but I think we're just being cautious in terms of how fast we believe the consumer will come back or really more likely when do we lap some of the behavior changes that we saw in the wake of the high inflation in the center store food categories. When do those get lapped in terms of your impact in consumer buying patterns? And so we're just being cautious, and I think that's prudent at this point. When we start seeing some indications that things are starting to improve, then I think we'll start calling it out. But, you know, to date we haven't really seen a lot of evidence of that through the third quarter.

Thanks so much.

Thank you. Our next question comes from the line of Michael Lavery with Hyper Sandler. Please proceed with your question.

Thank you. Good evening.

Hey, Michael.

You called out some of the currency pressure in frozen and vegetables, and I just want to make sure I understand that right. Is that just transactional? Is there a translational piece to it? And do you have any idea? I mean, I guess nobody knows, but is there any preparation you can do for potential tariff risk? Have you thought about that and have any thoughts there?

Yeah, so part one on the foreign currency, this is really the exchange rate between U.S. dollar and Mexican peso. It's actually normalized relative to the five-year average over the last number of weeks or a couple months. But we left a period where the Mexican peso was pretty strong relative to where it's been in the past and certainly stronger this year relative to where it was last year. That impacts really our core frozen business for Green Giant. It's those products that are manufactured down there. And that's transaction, that's not translation. And so that compressed margins and that impacted EBITDA. As far as tariffs, you know, it's election day. We're really not going to get into the election. We're obviously paying attention.

Okay, that's helpful. And just on the guidance, you've narrowed it, of course, but below the line still it's a pretty decent window at a 10 cent range is there anything in particular to keep an eye on there that you would say is more volatile or it sounds like the tax rates coming in still around where you thought and you should have a line of sight on on the interest expense I guess just what's you know the range of outcomes there that makes it feel a little bit wide

Yeah, if you just simply took our EBITDA range high to low and then used the interest expense, the depreciation and the amortization, and our tax rate, you'd get those EPS numbers.

Okay, that's helpful. Thanks.

Thank you. Our next question comes from the line of William Reuter with Bank of America. Please proceed with your question. Hey, Bill.

Hi, good evening. This is Rob Rigby on for Bill. So I was just wondering if you could discuss how your performance was versus private label during the quarter. Or I guess maybe private label trends in general.

I mean, I think as I said before, we... We look at private label really category by category. I mean, there are some categories where it's developed and we have, you know, kind of relative positions to private label. In other places, it's really not a factor. So I would say the biggest areas that we look at are in frozen vegetables, where we have seen some strength in private label, particularly on kind of that core base vegetable business. And I think, you know, you would have seen the rest of the category, including bird's eye, have the same issue. The frozen, you know, private label vegetable business has, you know, probably taken a little bit of share from the branded competitors. On the premium-priced businesses, you know, where, you know, you have sauced or where you also have some business, some sides, premium sides, seasoned, spiced, sides, that business, you know, has been fine. And, you know, there's really not a lot of private label competition in that. But on the core kind of basic vegetables, we've seen private label be relatively stronger than it was during the pandemic. The second place is really Crisco and, you know, vegetable oil in particular. And on that business, you know, honestly, we haven't really seen a lot of inroads from private label. The bigger issue has been Wesson just trying to hold their position in the marketplace relative to private label. They've actually come in with aggressive pricing that has hurt us a little bit, but has hurt private label more in the shared data. So that's not really impacting us that much, at least from a private label standpoint. It's more about a little bit more aggressive competitive activity from a sort of a number two brand trying to stay in position. And that's really the main ones that we look at, you know, Collaborgirl Baking Powder, we do a lot of the private label business, so not really a big impact in terms of how it moves relative to our position. But those are really the two categories that we track closely.

Understood. Thank you very much. And then I guess you touched on commodity prices and kind of how that impacted your gross margins, but I guess I was wondering...

how you expect uh commodity prices to uh to impact your margins going forward and maybe any expectations you may have uh in 25. thank you yeah and keep in mind we don't have um we don't typically provide guidance for the forward year on this earnings call we'll do that following the fourth quarter results um from an input cost standpoint you know we're we're one two percent input cost inflation so far this year is kind of where we are. And it feels like next year will be something similar, but we'll obviously update as we get more information and do our fourth quarter results.

I think we disclosed in our earnings comments that right now what we're seeing kind of isolated inflation in a few categories. That is offsetting some deflation and some others. But right now, we're seeing the most pressure on pepper and garlic, which are obviously pretty critical to our spices portfolio, spices seasonings portfolio. And we're also seeing some pressure on olive oil and a little bit on tomatoes. So those would be the big areas. But there are other areas where we're seeing a little bit of deflationary impact. But the net is what Bruce just said. It's probably 1%, 1.5%. That's what we see right now. And that's That's probably what we're looking forward into.

Understood. Thank you very much.

Yep. Thank you. Our next question comes from the line of Robert Moscow with . Please proceed with your question.

Hi. Thanks. I'm just wondering if you could comment on the competitive intensity that you're seeing I don't remember you mentioning Wesson last quarter, so it sounds like that's new. And then you also have intensity increasing in Mexican. So if this persists into next year, would you expect your business to continue to decline? Or do you think there needs to be more spending on those categories in order to hold onto your share. You've talked about sequential improvement, but does that also entail sequential improvement on these two categories? And then I also had a question about hot cereal, because I would imagine Quaker is going to try to become more aggressive on their oatmeal business at some point, once they restore capacity. Wanted to know if you consider that a risk as well.

And sorry, so Rob, are you talking about in the context of like a permanent shift or are you talking about ebbs and flows?

Well, I guess what I'm asking is, you know, as you head into 2025, I would imagine that it's still going to be tough in Mexican, still going to be tough in vegetable oil. Like, do you foresee those two categories stabilizing and returning to growth? And can you do that given the resources you've put against them, or do you need more resources? I'll start with that question, I guess.

I think we have started putting more resources against those two that you're talking about, where we've seen more competitive activity. And they also happen to be two pretty important businesses in our portfolio. You know, Crisco is really, I think, is a short-term pricing issue where, you know, Western has just gotten aggressive kind of going into this season, which is why we didn't necessarily call it out in August. We hadn't necessarily seen where they were going. But I think that's probably a seasonal play. You know, I think we will remain price competitive, you know, as we move into next year. We're not going to allow ourselves not to be price competitive in the marketplace. On Ortega... Yeah, I think this is, you know, this is what the third time that Taco Bell has made kind of pushes into the Mexican category. And, you know, we've got some pretty strong innovation and plans to, you know, going into next year. We're putting a little bit more money and resourcing behind that business. The trends in the category are good. It just happens that we are now splitting it along with Old El Paso with a third player who's made some inroads in distribution. And so I don't expect that pressure to increase next year, but I think we'll be stronger in terms of pushing back on it and stronger in terms of our innovation and distribution pipeline. So the answer to your question is we expect to improve the trends on those businesses next year relative to the competitive activity we've seen recently, and we are putting more resourcing and effort behind those businesses.

Okay. And on hot cereal, do you think you need to prepare for something if Quaker puts more effort against it?

We don't see a ton of correlation with cream of wheat in Quaker. We just don't. So that business, you know, I think we'll examine over time where that price point is and everything. But we don't see a lot of substitution between cream of wheat and Quaker. So we don't really look at that. I mean, we have a very small business in McCann's. that might be impacted by that, but we're feeling okay about our plans on that business. We launched a stand-up pouch and some other things. I don't think we're necessarily focused on that.

Got it. Makes sense. Thank you.

Thank you. Our next question comes from the line of Hale Holden with Barclays. Please proceed with your question.

Thank you. I just had two. On the specialty margin decline in the quarter, Is that all the Wesson pressure in Crisco or other brands in that portfolio that are seeing some margin declines or pressure?

Yes. Actually, in Wesson, sales were down more than profits. Crisco. Sorry, in specialty. Yeah, you said Wesson. Yeah, sorry, in specialty. Sales were down more than margins. So when you think about that in the context of Of Crisco, sales were down. Some of this is input costs coming down, and us reflecting lower input costs is lower pricing. It's sort of how we pledged in the model, and you kind of see that in the numbers this quarter.

Okay. And then the second question I had was, Bruce, on your kind of like longer-term thoughts for 25 with volumes normalizing through the first half, does that also include food service? I know you guys are in some pretty – specific categories than food service, and I was wondering if that was in that or if that was just the grocery brands.

That was an overall company view. We're actually saying, we're not really saying in the first half it's going to get positive. We're saying it's going to improve over the course of 2025 between the first half and the second half. I would expect that we'll see some normalization by the second half of 2025. But we would expect at this point We're not the experts, but if I look at the food industry traffic projections, we would expect it to stay a little bit negative into the first half of next year based on what I see from Technomic and other sources.

Okay. Thank you. I appreciate it.

Thank you. Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.

Thanks. Good evening. I wanted to ask a question on, actually I had a little bit of a different view on your trends going into the fourth quarter, being down a few percent in that quarter. It seems consistent with the multi-year trend that we saw this quarter, so I don't blame you for guiding that way based on the consumption data. And if we keep that multi-year trend the same going into the first quarter, it actually looks like it would be a lot better, like up 2%. Is that how you see it? Do you see those comparisons just internally as being that much easier going into the first quarter that it seems reasonable to base case that you would be up consumption and organic sales in the first quarter of 2025?

I mean, I think we see that we begin to lap in the first quarter some tougher, you know, last year some tougher consumption trends. So we do expect in, you know, moving into 2025 that we get better sequentially in the first and second quarters, or actually a composite of the first and second quarters in the first half. We do expect to get better than where we are in the Q3 and what we're talking about in Q4 right now. So we do see that. We don't see getting all the way to kind of flat or positive until the second half of the year. But it's all about, I think, when we lap some of these consumer trends and consumer environment and some of the consumer behaviors that we've been seeing in terms of trade down that we began to see in the first quarter significantly last year. If that helps.

Yeah, no, it does. I think there's... And in some of the previous answers, you touched on things that you're going to do or that areas that you're going to try to pursue improvement. Ortega was one. I'm just, maybe, could you just kind of rank your top three or four areas where you're going to be applying the most energy or you just see the most improvement happening that we should be tracking?

Yeah, I think, well, number one is spices and flavor solutions or spices and seasonings. You know, it was up last quarter. It's up this quarter, Q3. And, you know, we feel pretty good about the trend line of the business even going into next year. And it's just tracking the growth of the perimeter of the store, fresh proteins, you know, which are up now, I think, because the relative pricing spread of packaged and frozen foods has come down. So we believe that business is a nice growth business, and you hear McCormick talk about it, but we have the same thing going on in our business. We've got a good positive sales trend there. So that's number one, and we've launched some good innovation there. So that's one that we're pushing pretty hard on. Second, we've got a much stronger innovation pipeline on our Ortega business. We are the taco sauce leader. We've got some new things coming into the market. We've got a lot of good plans there. We're kind of beginning to spend back on marketing on the Ortega brand. So that would be kind of an area of the Mexican category that we're going to push on, and we've got strong plans. Crisco, I think it's all about making sure that we have the right pricing in the marketplace relative to the cost of oil or soybean oil. And then also making sure that we're supporting our shortening business, Crisco shortening business, with lots of recipes and digital outreach and influencers around baking and other things. So those are probably the biggest areas we're focused on next year. Obviously, frozen and vegetables in terms of the Green Giant Frozen portfolio. We need to continue to drive the right price points on our, you know, kind of core vegetables and sauce line, but we need to have successful innovation coming to marketplace. And right now we are introducing new premium sides that have gone well in our past launches. And we're also launching new ramen based products that are coming into the marketplace this fall and next spring, depending on the customer resets. So those are the big areas that we're focused on. And those are, big businesses for us, innovation-driven business for us with strong brand positions. So that's kind of where we're focused to see the improvement. But I think there's also a general improvement in the overall trends in the center store in terms of consumer buying habits and purchasing patterns. I mean, we've just seen a lot of kind of reactionary behavior from consumers this year as they looked at, you know, high inflation, what percentage of their income they were laying out in food and grocery stores. And we've just seen them take different actions like trade down in sizes and run down their home pantries or home inventories, not restock. So I just, I think we've started to lapse some of that as well. But from our standpoint, we've got to focus on what we control, which is those big brands where we need strong plans in the marketplace.

That's great color. Thank you.

Thanks, Dave. Thank you. Our next question comes from the line of Karu Martinson with Jefferies. Please proceed with your question.

Good afternoon. We certainly saw the slowdown in July for a number of companies, but kind of post-Labor Day we saw the snapback. Is that one-week reduction something that you're still seeing carrying through the fourth quarter, or are you seeing your retailer started to adjust that?

I think we've seen that reduction, whether it's depending on the retailer, a couple days or maybe even a few up to a week. We've seen that kind of carry forward, but we didn't see further inventory reduction in the August-September timeframe. We saw them kind of hold. And the only behavior change we're seeing this year is that they're probably putting, they're forcing less inventory out early in the season and letting it kind of flow through. And we're seeing that in our numbers. So they, you know, on critical oil, they may not order as many pallets out, you know, to force out in the stores. But we're seeing stronger pull through later, you know, in the season as they begin to sell through all that merchandise that they have at the promoted price points. That's a little bit of a shift from what we saw last year, and I think it's kind of an inventory management, you know, play for most of our retailers. But in the end, I think it nets out to zero. But we just have, you know, a little bit less, you know, flow up front and more kind of consistent throughout the quarter in our merchandising, you know, volume. If that helps you, yeah.

And then when we look at kind of the slower environment, what is the impact in terms of valuations when you guys look at your potential divestiture program?

Sorry, didn't quite understand the question.

Just to say like in a slow environment, are you seeing kind of contraction on potential M&A multiples as you look to right-size your portfolio? No. Yeah, no comment. All righty. Had to try. Thank you very much. Thank you.

And our next question comes from the line of Carla Casella with JPMorgan. Please proceed with your question.

Hi, thank you. You mentioned you redeemed the 25 notes after quarter end, which is great. Love to see that. Can you say where the revolver stood pro forma for that?

So just purely, I mean, what I would do is I think we have $40 million drawn at the end of the third quarter on the revolver, so you'll see that in our balance sheet in the queue in the press release, and $265 million of notes. So just pure simplicity, just subtract $265 from the notes, add $265 to the revolver, and that's your number.

Perfect. Okay. And then it sounds like from the inventory side, customer kind of rebalancing on the inventory side, it sounds like working capital should be sources of cash as we go through the final quarter, which I guess would be typical, but should it be an outsized source this quarter as you rebalance inventory levels in the trade?

Yeah, so thinking about I think the comment earlier in the conversation was around retailer inventories as opposed to B&G's inventories, although people are all behaving similarly. Last year for us was outsized inventory reduction. This year, overall, we're looking for more modest levels of inventory reduction. And you'll see that, for example, if you look at our third quarter inventory versus inventory, it was adjusted to be like for like. You know, we're down a little bit, you know, modest, but nowhere near the magnitude that we were during the course of 2023. Third quarter is our peak from a public reporting inventory period. And then we typically, as you said, will reduce inventory during the course of the fourth quarter as just the natural flow of the business. Probably not as extreme anymore without the canned business as it was in the past, but still definitely a – of reduction in inventory during the fourth quarter. Fourth quarter is usually our best quarter from the cash from operations.

Okay. And then one, just on the Wesson, I know you've gotten a lot of questions on this already, but does Wesson have similar like pricing contracts with customers, or because of their pressure, is it causing customers to come back to you to renegotiate how you price oils, meaning cost plus versus how much gets passed through in timing?

It's really less about that. I think it's just in the context of during 2022 and a portion of 2023, price is going haywire and everybody taking price up, right? We both raised price and we both lowered price this year. They've been a little bit more aggressive. You know, we saw lower info costs. So therefore, we've all reflected that on shelf. They've been a little bit more aggressive in their promotional strategy than us. But directionally, we've both taken price down as we should because cost came down.

Okay. Great. That's all I have. Thank you.

Okay.

Thank you. And ladies and gentlemen, we have reached the end of the question and answer session. And this also concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.