B&G Foods, Inc.

Good day, everyone, and welcome to the B&G Foods second quarter 2025 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. At this time, I'd 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 issue 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, under-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, base business net sales, and segment adjusted expenses. 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 2025. Bruce will then discuss our financial results for the second quarter of 2025 and our revised guidance for fiscal 2025. 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 second quarter 2025 earnings call. Today, I will cover an overview of second quarter performance. Bruce will cover more detailed financial results, recent divestitures and portfolio shaping efforts, and the outlook for the remainder of fiscal year 2025. Q2 results. The second quarter demonstrated sequential improvement in trend and performance after a challenging quarter one. Q2 net sales of $424.4 million finished 4.5% down versus last year, with base business down 4.2%. Q2 adjusted EBITDA was $58 million, down $5.0 million, or 9.3% versus last year. Some of the key drivers. Almost all of the adjusted EBITDA decline was driven by the frozen and vegetables business unit, with segment adjusted EBITDA down 6.5 million versus last year, behind higher true-up costs on last year's wheat crop, specifically corn and peas, higher trade spend from Easter-April timing, and the end of the Walmart rollback to improve core velocities. These costs will lap and are expected to reverse in the second half. The specialty business unit experienced significant net sales declines, 8%, primarily behind lower Crisco oil pricing year-over-year, consistent with our pricing model. Segment-adjusted EBITDA improved by 3%. The divestiture of the Don Pepino and Scalfini brands during the latter part of the quarter removed approximately $1.4 million of net sales and some modest profit. Portfolio divestitures. B&G Foods is making good progress in reshaping and restructuring our portfolio to sharpen focus, simplify the business, improve margins and cash flow, and maximize future value creation. The end game is to create a more highly focused B&G Foods with adjusted EBITDA as a percentage of net sales approaching 20%, increased cash flow generation, lower leverage closer to five times, a more efficient cost structure, and clear synergies within the portfolio. During the second quarter, we completed two key divesters. First, the Don Paupino and Scalfani Divester signed and closed in May. This is a tomato processing business with about $14 million in annual net sales with a dedicated factory. Second, the LeSueur U.S. Canned Peas Divester signed and closed last Friday. LeSueur has approximately $36 million in annual net sales in the U.S. with a premium position in canned vegetables. Both businesses have relatively high working capital needs, highly seasonal production, and were isolated in terms of the rest of the B&G Foods portfolio, particularly after the divestiture of the green giant U.S. canned vegetable business in late 2023. We expect additional divestitures in the future to further focus the portfolio and reduce leverage. Beyond LeSueur, we continue to evaluate and pursue the presidential defense investor of the green giant branded business in U.S. frozen and Canadian frozen and shelf stable. The remaining businesses in the frozen and vegetables business unit. Fiscal year 25 outlook. We expect the back half of fiscal year 25, Q3-Q4, to show solid improvement versus the first half trend. flat to slightly positive in net sales with year-over-year growth in adjusted EBITDA. The key assumptions behind the latest estimate. The 53rd week is expected to add plus 2% to 3% net sales growth in Q4, a partial week benefit. Excluding the impact of the 53rd week, base business net sales are projected to be down approximately 1% to 2% in the second half. July and early August net sales are consistent with that expectation, improving from the Q2 trend. As discussed last quarter, additional savings and productivity efforts are on track to deliver an incremental $10 million in adjusted EBITDA growth in Q3 and Q4, with an annual run rate of approximately $15 to $20 million. These include additional productivity in COGS, trade and market spending efficiencies, accelerated SG&A savings, and discretionary spending cuts. The U.S. frozen vegetables business is expected to turn profitable, roughly a plus $8 to $10 million increase in segment-adjusted EBITDA versus last year, behind more favorable crop costs, foreign exchange benefit on the portion of the green giant business manufactured in Mexico, and strong productivity in the Iropuato manufacturing facility. We have assumed tariffs at current levels with some possible mitigation through U.S. trade negotiation deals, alternative sourcing, or classification of spices as unavailable natural resources. We are planning to execute targeted pricing to recover incremental tariffs with some lag until fully negotiated and implemented. The largest exposure remains China sourcing of garlic and onions. We are also adjusting guidance primarily to reflect the impact of our two recently completed divestors. Bruce will provide more detail. Finally, we are committed to reducing leverage and balance sheet risk. We expect to reduce leverage to six times within the next 12 months by using divestor proceeds and excess cash that we generate through improved adjusted EBITDA performance and lower working capital needs to repay or repurchase 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 remainder of fiscal 2025.

Thank you, Casey. Good afternoon, everyone. Thank you for joining us today. While we are not satisfied with today's results, we are pleased with the continued progress relative to our challenging start to 2025. For the second quarter of 2025, we generated $424.4 million in net sales, $58 million in adjusted EBITDA, 13.7% adjusted EBITDA as a percentage of net sales, and 4 cents in adjusted diluted earnings per share. Overall, net sales for the second quarter of 2025 decreased by $20.2 million, or 4.5%, to $424.4 million from $444.6 million for the second quarter of 2024. Base business net sales, which exclude the Don Pepino and Sclafani brands that were sold at the end of May, decreased by $18.7 million, or 4.2%, in the second quarter of 2025 compared to the second quarter of 2024. $14.3 million, or 3.2 percentage points, of the decline in base business net sales was driven by lower volumes, $4 million, or 0.9 percentage points of the decline was driven by a decrease in net pricing. And the impact of product mix and 0.4 million dollars, or 0.1 percentage points, were driven by the negative impact of foreign currency. Approximately $5 million of the decline in net sales in the quarter was driven by Crisco, and nearly half of that was driven by net pricing, which was reduced in large part to reflect lower input costs for soybean oil. As we have highlighted since acquiring this business, our goal for Crisco is to increase net sales and net cash flows, regardless of movements in commodity oil prices, and that continues to be what we have done here. Outside of Crisco, the sequential improvement in net sales performance was generally broad-based against the portfolio and the business units. Base business net sales for specialty, which does not include net sales for the Don Pepino and Sclafani brands decreased by $10.2 million or 7.1% during the second quarter of 2025. If we remove the impact of Crisco, base business net sales for specialty decreased by $5.3 million or approximately 6.6%. Despite the lower sales during the second quarter of 2025, specialty segment-adjusted EBITDA was up modestly for the quarter at plus nearly $1 million, or 3%. And despite a modest inflationary environment, specialty benefited from lower raw material costs for certain brands, including soybean oil for Crisco and phosphates and cornstarch for Clabergirl. Similarly, Meals has reasonably solid performance despite soft net sales performance. Net sales of meals declined by $3.8 million, or 3.5%, disappointing for this business unit, but still an improvement from its first quarter performance. Nonetheless, segment-adjusted EBITDA was up by $1.8 million, or 7.7%, for the second quarter of 2025 compared to the prior year period. Cream of wheat returned to growth in the quarter after supply issues earlier this year, and we had strong performance from some of our other unsung heroes in the portfolio, such as Las Palmas enchilada sauce, Skinny Girl dressings, as well as Springtree and Vermont-made syrups. Net sales of frozen and vegetables also improved this quarter. After being down double digits in the first quarter, net sales were down just $2.6 million, or 2.8% in the second quarter of 2025, compared to the prior year. Net sales for the LeSore brand in the U.S. and our entire portfolio of products in Canada increased for the quarter as compared to the prior year quarter. Additionally, the U.S. frozen business continues to stabilize after a tough start to the year. We are proud to highlight that volumes increased for frozen vegetables in the aggregate during Q2 2025, despite tough but improving category dynamics. After a year of challenge around raw material pack costs and an unfavorable foreign exchange dynamic for frozen vegetable products made in our Mexican manufacturing facility, we are pleased to report that this year's pack appears to be significantly favorable when compared to last year's pack. Negative foreign exchange impacts have moderated, and we are expecting a better cost environment for the business unit and a return to profitability in the back half of the year. Spices and flavor solutions also had a comparably strong second quarter of 2025. Net sales for the business unit declined by a little bit less than $2 million, or two percentage points, in the second quarter compared to the prior year period. About half of the decline was driven by timing, net pricing, and mix within our food service business, and the remainder was driven by modestly softer volumes. Unlike our other center store businesses, spices and flavor solutions saw material increases in commodity costs, particularly for black pepper and garlic. Separately, our spices business also bore the brunt of our exposure to tariffs, about $1 million of the $1.6 million of total tariff exposure for B&G Foods in the quarter. As we prepare for the back half of the year, we expect to manage these cost challenges through continued productivity initiatives in our spices and flavor solutions factory, along with targeted pricing where appropriate. Gross profit for our overall B&G Foods business was $87 million for the second quarter of 2025, or 20.5% of net sales. Adjusted gross profit, which excludes the negative impact of $2.1 million of acquisition divestiture-related expenses, and non-recurring expenses including cost of goods sold during the second quarter of 2025 was $89.1 million or 21% of net sales. Gross profit was $92 million for the second quarter of 2024 or 20.7% of net sales. Adjusted gross profit which excludes the negative impact of $1.2 million of acquisition divestiture related expenses and non-recurring expenses included in the cost of goods sold during the second quarter of 2024 was $93.2 million, or 21% of net sales. Our material labor and overhead costs when measured against gross sales were favorable by approximately 100 basis points during the second quarter of 2025 as compared to the second quarter of last year. Promotional trade spend, which is captured in our net sales line, increased by approximately 120 basis points in the second quarter of 2025 as compared to the second quarter of 2024 as we continue to invest in our brands and attempt to reflect lower prices on shelf for consumers. The increase in promotional trade spend was also driven in part by the timing of Easter, which was in April 2025 compared to March 2024. Input cost inflation as measured by raw material costs across our basket of inputs and in our factories has remained mostly modest this year, thus far in 2025, outside of some categories such as black pepper, garlic, olive oil, tomatoes, core vegetables, and cans, which have been elevated. We continue to closely monitor inflation throughout the trade and tariff negotiations. And as I mentioned earlier, increased tariffs cost us approximately $1.6 million in adjusted EBITDA during the quarter, and a little bit more than $1 million of that in the spices and flavor solutions business unit. While we haven't seen the full benefit of a more normal or favorable U.S. dollar to Mexican peso exchange rate flow into our P&L this year, we still expect to see some benefit in the back half of the year. However, currency remains a potential wild card for our green giant business given the current macroeconomic environment and the political uncertainty regarding tariffs. Selling general and administrative expenses increased by $4.1 million or 9.4% to $47.2 million for the second quarter of 2025 from $43.1 million for the second quarter of 2024. The increase was composed of increases in consumer marketing expenses of $2.2 million and acquisition divestiture related and non-recurring expenses of $2.8 million, partially offset by decreases in warehousing expenses of $800,000 and selling expenses of $100,000. Expressed as a percentage of net sales, selling general and administrative expenses increased by 1.4 percentage points to 11.1% for the second quarter of 2025 as compared to 9.7% for the second quarter of 2024. As I mentioned earlier, we generated $58 million in adjusted EBITDA or 13.7% of net sales in the second quarter of 2025 compared to $63.9 million or 14.4% of net sales in the second quarter of 2024. Net interest expense decreased by $2 million to $35.8 million for the second quarter of 2025 as compared to $37.8 million for the second quarter of 2024. The decrease in interest expense was primarily driven by a book gain on the extinguishment of debt during the second quarter of 2025 as a result of our repurchase of $20.7 million aggregate principal amount of our five and a quarter senior notes due to 2027 in open market purchases and an average discount repurchase price of 89.98% of principal amount. plus accrued and unpaid interest net of the accelerated amortization of deferred debt financing costs. Depreciation and amortization was $16.7 million in the second quarter of 2025, which is largely in line with the $17.3 million in the second quarter of last year. We had adjusted net income of $2.9 million or 4 cents per adjusted diluted share in the second quarter of 2025. In the second quarter of 2024, we had adjusted net income of $6.6 million, or 8 cents, per adjusted diluted share. Adjustments to our EBITDA net income are described further in our earnings release. Now moving on to our consolidated cash flow and balance sheet. Cash flow continues to be strong this year. We generated $17.8 million in net cash from operations during Q2 2025, versus 11.3 million in Q2 2024. On a year-to-date basis, we generated 70.6 million of net cash from operations during the first half of 2025 versus 46.4 million during the first half of 2024. We've also reduced our net debt to $1.957 billion at the end of the second quarter of 2025. Pro forma for the sale of Lasur, U.S. net was reduced to a little bit more than $1.9 billion at the end of Q2 2025. And as a reminder, net debt was $1.994 billion at the end of fourth quarter 2024 and $2.022 billion at the end of second quarter 2024. As a reminder, approximately 35% of our long-term debt is tied to floating interest rates or SOFR. A 100 basis point reduction would be expected to reduce our interest expense by nearly $7 million annually. As Casey mentioned earlier, we continue to make progress on our portfolio reshaping efforts. Our recent investors of the Don Pepino and Sclafani bands in May and now the LeSore brand in the U.S. last week are continued examples of the strategy that we believe will make us a more focused and ultimately a stronger business while also helping us to reduce debt and eliminate heavy seasonal pack businesses from our portfolio. We think that the new owners for both of these divested businesses will do well. They are great brands, but they are not in line with the focus that we have laid out for the B&G Foods of the future. The Don Pepino and Squifani brands contributed approximately $14 million in net sales over the trailing 12 months through May 2025, and approximately $9 million in net sales in June through December 2024. Although small, the brand is profitable, particularly in the back half of the year. The LeSore brand in the U.S. contributed approximately $36 million in net sales over the trailing 12 months through June 2025 and approximately $19 million in net sales in August through December 2024. Like the Don Pepino and Sclafani brands, LeSore U.S. is also a profitable little brand that we believe will do well for its new owner. As a result of these divestitures, we have revised our fiscal year 2025 guidance to remove their previously expected contribution for the remainder of the year. We now expect net sales of 1.83 billion to 1.88 billion, adjusted EBITDA of 273 million to 283 million, and adjusted earnings per share of 50 to 60 cents for fiscal 2025. Our updated guidance continues to account for a modestly softer economic environment that has impacted consumer spending patterns. It also reflects our expectation that our top line will continue to stabilize and that our input costs will remain relatively consistent outside of any surprises resulting from the ongoing tariff negotiations. In addition, our guidance incorporates our cost reduction plans which we expect will produce approximately $10 million of cost savings in the second half of the year. Given the uncertainty in the political environment and the rapidly evolving negotiations regarding tariffs and retaliatory tariffs, our guidance does not reflect all of the potential impacts of the recently imposed and threatened tariffs in the U.S. and retaliatory actions taken or threatened by other countries in response. or the potential for additional tariffs, trade barriers, or retaliatory actions by the US or other countries. As a reminder, more than 90% of our net sales are to customers in the US, and the remainder are primarily to customers in Canada. Approximately 80% to 85% of our products, ingredients, and raw materials are sourced in the United States, Canada, and Mexico. The majority of our non-North American sourced products, ingredients, and raw materials particularly within our spices and flavor solutions business unit, originated in Asian countries, including black pepper, which is primarily sourced in Vietnam, and garlic, which is primarily sourced in China. Additionally, we expect for full year 2025, interest expense of $147.5 to $152.5 million, including cash interest of $142.5 to $147.5 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. We are also committed to reducing our net debt and our net leverage ratio over the next 12 months. We expect to reduce our pro forma net leverage ratio by at least a full turn from just under seven times today to less than six times by this time next year through the successful execution of our divestiture strategy, stabilization of our adjusted EBITDA, our excess cash generation, and continued improvements in working capital. Now I will return the call back over to Casey for further remarks.

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

Ladies and gentlemen, at this time we'll begin the question and answer session. To ask a question, you may press star and then one using a touch tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, in order to ask a question, please press star and one. We'll pause momentarily to assemble the roster. Our first question today comes from David Palmer from Evercore ISI. Please go ahead with your question.

Thanks. Bruce, I think you mentioned that the core business was expected to be down one to two percent. I think, is that your organic sales interpretation of what you put forward as the revenue for the second half, so down 1% to 2% versus... Yeah, so base business X the divestitures.

To be kind of midpoint of our guidance is down about 1% after then adding, we call it $15 million to $20 million or pick $16 million down. as the benefit for the 53rd week, which will be in our fourth quarter.

You know, what would be, when we look at current trends, the multi-year versus, you know, it doesn't look like the comparisons get that much easier versus what we've seen lately. In other words, it looks like we're down five-ish in the MULO Plus data, and I know you have some improvement that you're hoping to get in frozen, maybe spices, I don't know. But, you know, help us get comfortable with that sort of guidance versus the type of trend you see now going forward.

Yeah, so the low end of our guidance is like a down 2%, 3%. And if you think about where our performance has been this year, you know, we were down 10.5% first quarter, which is terrible. On a base business, we're down 4.2% in the second quarter. We had pretty good stabilization towards the tail end of the second quarter in July. It was starting all right for the third quarter, so that's about where we expect to come out.

July and early August are more in the minus 2% range. So we're seeing the improvement already happening in the early part of the third quarter.

But, Dave, I do agree that generally there's a correlation between the consumption data that we use Nielsen in our shipments. We expect to see that continue to get less unfavorably or better, however you want to view it.

I mean, we believe that at some point we're going to lap the negatives and the consumer behavior changes in our business. Plus, we know we can see on some of our business we have pretty strong plans. We've just got to see it stabilize, and we're kind of projecting some improvement in the back half trend.

Yeah, and I mean, just for what it's worth, in the IRI, the Cercana MULO Plus data is showing minus 5% in the last four weeks and the last 12 weeks ending that we see, but maybe you're seeing more up-to-date data than we are.

We also have a custom database. We would be a little better than that.

Yeah, got it. All right, I'll pass it on. Thank you very much.

Our next question comes from Scott Marks from Jefferies. Please go ahead with your question.

Hey, good evening, guys. Thanks for taking the questions. First thing I want to ask about, you mentioned some targeted pricing actions and other kind of tariff mitigation efforts. Just wondering if you can kind of give us a sense of how much of those tariff impacts you think you'll be able to mitigate through some of those actions and how retailers have been responding to some of these price increases.

Yeah, so we have not disclosed the dollar amounts. The vast majority of our area of exposure on tariffs is our spices and flavor solutions. So you think particularly garlic and black pepper. Anybody who's buying black pepper and garlic in the world are buying them from China and Vietnam. So B&G and all of our competitors and people will take price against those. There may be some risk on an interim, you know, how much tariffs slip through your P&L before you got the benefit of that. But you've also seen other people in the space talk about taking price. The other primary area of concern for us is kind of steel prices. cans. And like everybody else, you know, our expectation is we're going to have to take price.

I think in this fiscal year, we, you know, we are implementing and negotiating pricing actions to recover the tariffs. There will be some lag between when we start paying the, you know, the tariff costs and our input costs and when the pricing becomes effective just because of retailer lead times on price changes. But, you know, we expect a price for most of the tariff impact, and in some cases we'll offset a little bit with productivity and cost savings efforts.

Okay, understood. And then maybe, I guess, as we think about, I guess, the guide down for the year and then obviously implied H-2, maybe how much of the guide down was driven by some of those divestitures

It's primarily the divestitures. Almost all the divestitures.

Okay. So then the outlook for H2 is still kind of in line with how you were thinking about it, I guess, after the Q1 results.

Yes.

Okay. Got it. All right. Very good. Thanks. I'll pass it on.

Our next question comes from William Reuter from Bank of America. Please go ahead with your question.

Good afternoon. I've got a couple. So the first, I don't think I explicitly heard any EBITDA given I heard the $36 million of sales for LeSore. Did you provide an EBITDA number that I didn't hear?

We did not.

Okay. And I guess that's something you're not going to be providing?

No. It's a sale to a private company. Typically, we don't end up giving that out.

Okay. Okay. And did I hear correctly that your net debt went from 1.936 to a little over 1.9? So I guess the proceeds there are somewhere in the 30-ish or $35 million range. Is that right?

No, no. I think you maybe misheard that. Actually, if you go into our queue, there's a subsequent event where it walks through the net proceeds. It's about $59 million with the benefit of a small bond. small working capital adjustment in our favor.

Okay. I guess I hadn't seen the queue yet. Yeah, it just came out. Okay, cool. And then just lastly for me, in terms of your availability today or at the end of the quarter on your ABL, including any sort of financial covenants that may exist for maintenance, can you share with us what that number would be?

So we don't have an ABL. We've got a cash flow revolver. And the primary covenant on that is a maintenance leverage test, which is now seven and a half times.

Yeah, sorry, that's the second quarter in a row I've used the wrong term. But yeah, no, I guess I was wondering if you include that interest coverage as well as the leverage covenant, what the availability would be?

Yeah, it's just math. I don't have it in front of me, but you should just be able to run where we finish the quarter, which is probably just under Seven times, probably closer to 6.8, 6.8 and change pro forma for Lasur. So you've got basically 0.7 turns of leverage of cushion. Perfect. All right, that's all for me.

Thank you.

Our next question comes from Robert Moscow from TD Cowan. Please go ahead with your question.

Hi, thanks. I might have missed it, but do you have any comments about... the flavor solutions part of your business, spice and seasonings. Like, is it in line with your expectations or a little light? Like, I would have thought that, you know, cooking at home would be a real tailwind for these brands. And, you know, are you seeing that in the business or are you seeing some elasticity there as well?

In our spices and seasonings business, or spices and flavor solutions is what we call it, I would say that the results are not quite in line with our expectations. We would expect to be seeing that business stable to up slightly. So we're not quite seeing the tailwind that we would like to see. There's a lot of pieces to that business. There's some private label members, Mark. There's some food service business. So there's different performances. And then there's the branded retail business. But, you know, I think we should be seeing that business, you know, slightly positive in the back half. And that would be more in line with what we'd expect because we are seeing the category getting some benefit from its tie to the perimeter and the growth of proteins, fresh proteins in the store. You know, that is where we predominantly have tariff impact. So, you know, that's where we'll be, you know, doing some pricing, you know, kind of targeted pricing to recover. So I would expect to see some pricing benefit as well.

Okay. Are there any changes you can make to your sourcing to try to either find less expensive raw materials to mitigate the spice and seasonings tariffs or different suppliers, or is that not possible?

I mean, yes, we are doing that. So we are looking at alternative sourcing on some of the spices, but honestly... Most of the spices come from countries that have tariffs on them already. It doesn't really matter where you move them. So there is some work that we've done to mitigate that. We've tried to source, you know, China is probably our most vulnerable position with, you know, garlic and onion. China supplies 80% of the world's garlic. There's not a lot of other options. California doesn't even come close to meeting the needs. And there's really no other available sourcing in the United States. But, you know, we have found like some other small sources of onion and garlic that we've been able to move outside of, you know, China, 30 percent tariffs, which is kind of our highest right now. But I'm not sure that we can really get out of most of these tariffs. We'll need to price for them. There will be some mitigating actions that we could do, and there will also probably be some offsetting productivity. But at the end of the day, spices are grown in the climates where they can be grown. They can't be grown in the United States. They're really unavailable natural resources in the United States. And so I'm hoping over time that that realization will help some of the trade negotiations and that just like coffee and cocoa can't be sourced in the United States, spices have the same footprint. So we'll see over time. But right now, we're just counting on what the prevailing tariffs are and building that into our models.

Got it. All right. Thank you.

Our next question comes from Hale Holden from Barclays. Please go ahead with your question.

Hi, I've got two or three really quick ones. Can you remind us, the LeSore Canada brand, is that smaller or larger than the U.S. brand?

It's smaller. Smaller.

And following on the spices comment, would the expectation be you can catch up to pricing in the fourth quarter to get back to sort of historical margins, or do you think it'll take you into 26?

I think it'll take us into 26 to get back to fully recover the impact of tariffs, but I think we will partially cover them in the Q4 timeframe. It's just a lead time of, you know, retailer pricing actions that we'll have to manage. And by the way, some of our food service and private label contracts also have only specific windows where we can price. So we'll have to kind of work through those timelines.

And then the last question I had was in the disclosure in the queue around the SOAR and the expectation for a potential write-down in the third quarter seems to imply that we could get more asset sale announcements by the end of the third quarter. Is that the right interpretation?

Yeah, at some point this year, and look, we made a point of talking to a strategic review last year, and that, in our mind, was always expectation probably happened 2025. LASUR is the first piece, right? And we're in, you know, conversations with some logical strategic buyers for each of the pieces, and we're moving along, but M&A takes time, and it's, you know, it's not always easy to predict the timing, but we're sort of moving forward in these. if that's your question.

It was. Thank you very much, Bruce. I appreciate it.

Anytime. Our next question comes from Carew Martinson from Jefferies. Please go ahead with your question.

Good afternoon. Just from a mathematical housekeeping, if Green Giant was or Frozen Vegetables was $396 million of sales last year, we take out the LeSore, is what we're looking at for potential divestiture is about $360 million kind of remaining of sales?

Give or take.

Give or take. And how much of that is just in Canada? You said LeSour is smaller. The Green Giant in Canada, I would assume, is smaller as well.

No, no. Green Giant is the number one brand in Canada, so it's kind of disproportionately larger than U.S. business.

Oh, yeah. So it's about $100-plus million of sales in Canada. Okay.

And a can, by the way, includes both frozen and shelf-stable. Yeah. So canned vegetables. Cans are still up there as is the frozen bit. It's the number one brand in both those categories. In the U.S., we are just U.S. frozen and undergreen giant, and we're the number two brand.

Okay. And then when you're looking at divestitures, you mentioned in conversation that Is the objective to try to do this all at once, or will it kind of continue to be these smaller sales as we move assets off the balance sheet?

Yeah, it's unlikely that it's all going to be at once. The store transaction signed and closed, that was done on Friday, cash in the bank.

Thank you very much, guys. Appreciate it.

Yep. Once again, if you would like to ask a question, please press star and then 1. To withdraw your questions, you may press star and two. Our next question comes from Carla Casella from JP Morgan. Please go ahead with your question.

Hi, thanks for taking my question. You mentioned trade spend and timing with Easter. In general, are you seeing a dramatic change in trade spend as you look to planning for a third quarter and back half? Are any categories particularly either promotional or asking for more trade spend?

I think there's a – we will probably see an increase in trade spend in the back half of the year, but nowhere near the levels of the first half increase. We've seen, you know, promotional spend become a little bit more competitive and merchandising become a little bit more competitive out there. And we've, you know, we've done what we need to to stay competitive. Some of that trade spend is also reflecting lower prices like on Crisco and some other things, you know, where we have year-over-year declines in the commodity and we price to that. But I would expect that we have a much smaller increase in trade spend year over year in the back half because we had started to kind of kick up our promotion efforts back to kind of pre-COVID levels last fall. And so we'll be lapping that this year. So I think you'll see it. If we were up, I don't remember, like 130, 140 basis points in the first half, we won't be up anywhere near that level in the second half.

Okay, great. And then the inventory related to LeSueur that comes out in the third quarter, is that the $59 million?

No. So $59 million was effectively the purchase price, which included, we haven't disclosed it, but it included a favorable working capital adjustment. So part of, you know, we've talked about this over time. Like these are two nice little businesses, both Don Pepino and LeSueur. They're both profitable. They are both pack plan businesses where you're buying a year's worth of inventory and and then you're selling it through. And typically in an M&A transaction, you're doing things on like an average inventory basis. That has movement this year. Don Papino, we sold before the PAC. LeSore, we sold after the PAC. And so we got a little bit of a benefit, but we got a real price for both transactions, you know, reasonable multiples, and they're both delivering on a ratio basis.

Okay, that's great. And then just given the changes in the business and the asset sales, has your mix of food service overall changed dramatically, food service versus retail?

Only in the sense that LeSore was an all-branded retail business. It's relatively small in the portfolio. And then Don Pepino was probably a split, but it's like $15 million of sales. So it probably doesn't really move the needle, but, yeah, we'd be lower food service today than – Slightly lower end, but not – certainly not anything that would change our competitiveness in that category.

Very, very little change overall.

Okay. And then your commentary about the asset sale when it was announced and the proceeds, can you just talk about the flexibility you have in terms of reinvesting the proceeds? If it's a working capital adjustment, is it still considered proceeds under the definition –

Yeah, this is all going to go to debt reduction.

Okay. Great.

Thank you. And ladies and gentlemen, that does conclude today's question and answer session as well as our conference call. We thank you for attending today's presentation. You may now disconnect your lines.