B&G Foods, Inc. (BGS) Q4 2017 Earnings Report, Transcript and Summary

Good day and welcome to the B&G Foods Fourth Quarter 2017 Earnings Call. Today's call is being recorded. You can access detailed financial information on the quarter and the full year in the company's earnings release issued today which is available at ir.bgfoods.com. Before the company begins its 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 the company's most recent annual report on Form 10-K and subsequent SEC filings for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The company will also be making references on today's call to the non-GAAP financial adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, base business net sales and free cash flow. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release. Bruce Wacha, the company's CFO, will start the call by discussing the company's financial results for the quarter. After that, Bob Cantwell, the company's Chief Executive Officer, will discuss various factors that affected the company's results, selected business highlights and his thoughts concerning the outlook for 2018 and beyond. And Ken Romanzi, the company's newly hired Chief Operating Officer, will make some remarks. I would now like to turn the conference over to Bruce. Bruce C. Wacha - B&G Foods, Inc.: Good afternoon. Thank you for joining us. I'll begin with some highlights for the year. In 2017, we generated company record net sales, adjusted EBITDA and adjusted diluted EPS. We also completed our first full-year of running Green Giant on our own and integrated three acquisitions including the spices and seasonings business that we acquired in November of 2016, the Victoria premium pasta sauce business that we acquired in December 2016, and the Back to Nature business that we acquired in October 2017. In 2017, we generated $1.67 billion in net sales which is in line with the guidance that we provided during our third quarter conference call. We added more than $275 million in net sales in 2017, a 20% increase versus the prior year. Net sales growth was primarily driven by our three most recent acquisitions, all of which performed better than expected, as well as strong growth in Green Giant frozen and Pirate Brands. We generated company record adjusted EBITDA of $333.2 million and adjusted diluted EPS of $2.12. These compared favorably to a year ago results of $322 million in adjusted EBITDA and adjusted diluted EPS of $2.07. Net sales of Green Giant frozen products increased by more than 11% 2017 driven by nearly $80 million in net sales of innovation products making Green Giant frozen the second fastest growing brand in the frozen foods category. Our spices and seasonings and Victoria acquisitions combined to generate more than $300 million in net sales in our first year with these businesses compared to our initial forecast of approximately $260 million in combined net sales. Finally, Back to Nature also performed well in our first quarter of ownership, generating approximately $20 million in net sales, compared to our initial forecast of approximately $17.5 million. These four businesses, Green Giant frozen, spices & seasonings, Victoria and three months of Back to Nature accounted for approximately $660 million or 40% of our total 2017 net sales and contributed significantly to our total net sales increase of 20% for the year. Green Giant frozen net sales increased by $34 million over the prior year and our three most recent acquisitions outperformed our expectations by approximately $45 million. Now I'll discuss the fourth quarter. During the fourth quarter of 2017, we generated net sales of $473.7 million, an increase of approximately 14.5% versus the year ago period; adjusted EBITDA of $68.9 million, an increase of approximately 10.5%; and adjusted diluted earnings per share of $0.57, an increase of 96.6%. During last year's fourth quarter, we generated $413.7 million of net sales, $62.4 million of adjusted EBITDA and $0.29 of adjusted diluted earnings per share. Base business net sales for the fourth quarter of 2017 were essentially flat at $380.9 million, compared to $382.2 million in the fourth quarter of 2016. Net sales of Green Giant frozen products increased by $18.7 million or 23.4% benefiting from strong performance of new innovation products and net sales of Pirate Brands increased by $2.1 million or 11.4%, benefiting from new distribution wins plus momentum from strong back-to-school season and successful promotional events. We also saw net sales increases from New York Style about $1.5 million or 18.1% and Bear Creek of about $1 million or 4.5%. The net sales growth of Green Giant frozen, Pirate Brands, New York Style and Bear Creek were offset in part by net sales declines of Green Giant shelf-stable products of $18.9 million or 30.9%, primarily due to weak consumption trends and distribution losses with a key customer, declines in maple syrup products of $1.8 million or 6.8% primarily due to our decision during the first quarter of 2017 to discontinue certain private sales, and declines of Ortega net sales of $1.8 million or 5% primarily due to heightened competitive activity. Gross profit decreased 5.3% to $101.2 million in the fourth quarter as compared to $106.9 million for the fourth quarter of 2016. Gross profit expressed as a percentage of sales was 21.4% in the fourth quarter of 2017 compared to 25.8% in the fourth quarter of 2016. Excluding the 90 basis points impact of product mix and the 50 basis point impact of acquisition-related and other non-recurring expenses, gross profit as a percentage of net sales decreased by 290 basis points. Approximately 170 basis points of the decrease in gross profit percentage was due to an increase in warehousing and distribution costs and 120 points of the decrease was due to a decrease in net pricing. Selling, general and administrative expenses were essentially flat at $59 million in the fourth quarter of 2017 compared to $58.8 million in the prior-year period. The quarter benefited from reduced consumer marketing of $9.8 million, offset by increases in acquisition-related and other non-recurring expenses of $6.8 million, and selling expenses of $3.6 million. Expressed as a percentage of sales, our SG&A expenses improved by 170 basis points or 12.5% in the fourth quarter of 2017 from 14.2% in the fourth quarter of 2016. Adjusted EBITDA although up $6.5 million versus the year ago period, fell short of our expectations. Key factors that inhibited adjusted EBITDA growth for the fourth quarter versus our expectations included the following, inflationary pressures on freight transportation and warehouse costs, which increased by more than $6 million in the quarter versus our expectations. The impact of a slower than expected finish of December for net sales including a shortfall in net sales of Green Giant products, that was largely driven by greater than expected declines in Green Giant shelf-stable sales, which negatively impacted our adjusted EBITDA by approximately $5 million to $6 million. Incremental market spending over plans to support better than expected reception to Green Giant innovation products at certain key retailers negatively impacted adjusted EBITDA by approximately $3 million. The negative impact of mix across our portfolio had a negative impact of approximately $2.5 million. And finally, we had negative currency impact of approximately $1.5 million for the quarter. Collectively, these items negatively impacted our adjusted EBITDA by approximately $90 million and were the primary reasons for the shortfall between our expected and our actual adjusted EBITDA performance. We generated net income of $129.9 million and diluted earnings per share of $1.95 for the fourth quarter of 2017 as compared to net income of $13.6 million and diluted earnings per share of $0.20 in the year ago period. After adjusting for acquisition related and non-recurring expenses as well as the recently enacted U.S. Tax Cuts and Jobs Act which required us to revalue our acquisition related deferred tax balances, we generated adjusted net income of $37.6 million and adjusted diluted earnings per share of $0.57 compared to adjusted net income of $19.4 million and adjusted diluted earnings per share of $0.29 in the year ago period. Moving quickly to the balance sheet, we finished the year approximately 5.8 times net debt to pro forma adjusted EBITDA with approximately $207 million in cash. We remain firmly committed to maintaining our dividend policy. At $1.86 per share, our current dividend yield is nearly 6% based on today's stock price. As a reminder, we have now paid 53 consecutive quarterly dividend since our IPO in 2004 and paid shareholders nearly $125 million in dividends in 2017. Yesterday, our board declared our 54th consecutive quarterly dividend. In November 2017, we completed an offering of $400 million aggregate principal amount of 5.25% senior notes due in 2025, priced to yield approximately 5%. And we refinance our senior secured credit facility which reduced the spread over LIBOR by 25 basis points on our tranche B term loans and on our revolver, and we increased our now undrawn revolver from $500 million to $700 million in size. We continue to view our balance sheet as a considerable area of strength and we are pleased to note that we are well-positioned to continue our acquisition growth strategy. Now, on to our guidance for fiscal 2018. We expect net sales to be in the range of $1.720 billion to $1.755 billion including the impact of the new FASB revenue recognition standard, which I'll walk you through shortly, adjusted EBITDA of $347.5 million to $365 million, and adjusted diluted earnings per share $2.05 to $2.25. In addition, for those building your own models, we also project net interest expense of $110.5 million to $115.5 million, including cash interest of $105 million to $110 million, and interest amortization of $5.5 million. We project 2018 depreciation expense of approximately $36 million, amortization expense of $18.5 million, and we expect to realize significant long-term benefits of the recently passed tax reform legislation that will impact both our GAAP reporting and cash taxes going forward. We currently expect an effective tax rate of approximately 25% in 2018 and cash taxes of just $15 million to $20 million. We expect approximately $50 million to $55 million in CapEx during 2018. Based on the midpoint of our adjusted EBITDA guidance, we expect that our adjusted EBITDA less CapEx, cash taxes, and cash interest will be approximately $175 million. In addition, we expect to have a reduction in working capital that will positively impact cash by an additional $75 million to $100 million, largely due to our inventory reduction plan. Combined, we expect to generate cash sufficient to reduce net debt by $125 million to $150 million or approximately four-tenths of a turn of adjusted EBITDA, after making expected dividend payments of approximately $125 million. After deleveraging, and based on the midpoint of our guidance, we expect to be approximately 5.2 times net debt to EBITDA at the end of 2018. With $207 million of cash on our balance sheet at year end, an undrawn revolver of $700 million, and our strong free cash flow generation, we expect to have more than $1 billion available to continue pursuing our acquisition strategy. We may also use a portion of our cash to repay long-term debt, or to opportunistically repurchase shares. I would like to spend a quick moment on our net sales guidance before turning the call over to Bob. Our net sales guidance of $1.720 billion to $1.755 billion takes into account a reduction in net sales of about $20 million, as a result of the new FASB revenue recognition standard or RevRec, which we have adopted at the start of fiscal 2018 and will be reflected in our 2018 financial reporting in a full retrospective manner. Going forward, we will change our accounting for certain components of our customer promotion expenses. These expenses were previously recorded within SG&A in our consolidated statements of operations. Beginning in 2018, these expenses will be presented as a reduction of net sales with a comparable reduction in SGA. This accounting change will have no impact to our net income, EBITDA, adjusted EBITDA or net cash from operations. Separately, our net sales guidance for 2018 reflects growth of approximately 4.5% to 6.5% versus 2017 net sales, including approximately 4 percentage points from a full year of Back to Nature and about 1 percentage point of growth from each of pricing and volume on the rest of the portfolio. We expect the combination of these price increases and our cost cutting initiatives to offset the modest inflationary pressures from transportation and other input costs including commodity, packaging and other expenses of approximately 1% of our total net sales that we except to see in 2018. And now, I'd like to turn over the call to Bob Cantwell, our President and Chief Executive Officer. Bob? Robert C. Cantwell - B&G Foods, Inc.: Thank you, Bruce, and thank you to the audience for joining our call today. It is a pleasure to provide you all with an update on our business. As Bruce mentioned, 2017 was an impressive year of growth for the business as we added more than $275 million in annual net sales to deliver company record net sales of $1.67 billion. We have more than doubled the size of our business in just three short years, adding the requisite staff and infrastructure, while never losing sight of the things that have made B&G Foods such a special place over the last 20-plus years. We continue to add talent and we are joined today on our call for the first time by Ken Romanzi, our Chief Operating Officer, a new position at our company. As many of you know, Ken joined us in December 2017. He brings a wealth of experience including most recently serving as President of fresh foods for WhiteWave Foods where he was responsible for the management of Earthbound Farms, and before that serving as Chief Operating Officer of Ocean Spray, a position that he held for 11 years. Ken will be instrumental to our efforts to execute our growth strategy in 2018 and the years ahead. We are very excited by the changes that we have made to our portfolio over the past few years, changes we believe have positioned the company to benefit from consumer preferences today and in the future. Seven of our key brands plus our spices and seasonings business drive more than 75% of our net sales and 80% of our adjusted EBITDA, and compete in exciting growing categories such as frozen vegetables, ethnic foods, better-for-you snacks, spices and seasonings and premium pasta sauces. In fact, our three largest pieces of business, Green Giant frozen, Pirate Brands and Ortega, plus our recently acquired in legacy spices and seasonings business account for more than 50% of our net sales in 2017, and we believe they are well-positioned for continued success. We had an unprecedented year for innovation sales at B&G Foods with new Green Giant frozen innovation products, such as Green Giant Mashed Cauliflower, Green Giant Riced Veggies and Green Giant Veggie Tots generating nearly $80 million in net sales. Net sales of Green Giant frozen products grew by more than 11% versus 2016 and saw impressive consumption trends of 14.5% growth for the 52 weeks ended December 30, and 27.3% growth for the 13 weeks ended December 30, 2017. We expect to build upon this success with our newly launched Green Giant frozen spiralized veggie products now appearing in stores across the country and which are already helping drive the double-digit consumption growth that we are so excited about. We are very encouraged by preliminary responses to this launch and look forward to discussing in more detail during our Q1 conference call. The strength of the iconic Green Giant brand coupled with innovation new products has helped to make the entire frozen vegetable category one of the fastest growing categories in the grocery store. And we are thrilled to be a frozen vegetable thought leader during this exciting time for the category. Consumption trends for frozen vegetable category have increased by approximately 7% in the 13 weeks ended December 30, 2017. Driven in large part by the changes we are bringing to the category with our Green Giant innovation products. Meanwhile, we continue to see strong gains with our growing spices and seasonings business. The spices and seasonings business that we acquired last year generated more than $260 million in net sales in 2017, compared to our expectations of $220 million at the time of our acquisition. The acquisition supplemented our legacy spices and seasonings business, which included Mrs. Dash and Ac'cent among others and takes us to approximately $350 million in net sales for our combined spices and seasonings groups. And for any of us with young children, Pirate's Booty continues to be a guilt-free snack that parents and kids love. It is a must have on every child's list for birthday parties and is one of the most desired snacks for lunch boxes and snack time. Recently, there has been a debate in the industry over the long-term viability of brands and the future prospects for branded food sales. At B&G Foods, we firmly believe brands do matter and it is our job to ensure that the portfolio of brands that remain relevant to consumers both today and in the future. We believe that our portfolio is well-positioned to do so and will continue to serve us well for many decades to come. In fact, we have turned around our base business, and over the last six months of 2017, we have grown our base business net sales by 1.2%. We have also commented extensively over the past couple of months regarding inflationary pressures for 2018 including transportation cost increases of 10% or approximately $15 million and other inflationary net cost increases Including commodities, packaging and other expenses of approximately $5 million. However, as industry veterans have seen time and again modest inflation has historically been good for the consumer packaged goods industry, both for manufacturers and for our respective retail partners. Typically as an industry, when readily identifiable costs have increased, we have been able to pass these costs on to preserve the integrity of our business models. And I don't believe this time will be any different as earlier this month, we announced to our customers a price increase for most products in our portfolio as a result of this inflation. We expect to begin seeing benefits of these price increases as early as the second quarter. We believe that the net benefits of our price increases, inventory optimization, and cost-cutting initiatives across the organization will be sufficient to maintain our margins at their current levels, while simultaneously growing our net sales in line with our stated outlook for 2018. As Bruce discussed earlier, we are disappointed at missing our adjusted EBITDA guidance for Q4. We delivered on net sales and adjusted diluted EPS, but not on adjusted EBITDA. The key drivers for adjusted EBITDA shortfall included freight and warehousing cost, which came in some $6 million higher than we expected. While our slower-than-expected topline finish to an otherwise strong fourth quarter, coupled with faster-than-expected declines in shelf-stable vegetables cost us another $5 million to $6 million. We also chose to spend aggressively behind some very well-received Green Giant frozen innovation products and as a result decreased our marketing spend by just $11 million versus our planned decrease of $14 million, contributing to a net drag on adjusted EBITDA of $3 million versus plan. But, we believe this was the right thing to do to support the business. And now, as we enter 2018, we have a new baseline and currently have no major ongoing acquisition integrations making this a much cleaner comparison than we had last year at this time. I am very confident in our guidance of net sales of $1.720 billion to $1.755 billion. Our adjusted EBITDA of $347.5 million to $365 million, and adjusted EPS of $2.05 to $2.25 a share. Our adjusted EBITDA model essentially calls for comparative well-adjusted EBITDA margins in 2018 from our base business plus incremental benefit from Back to Nature which is performing in line with expectations. I expect overall, B&G Foods' Q1 performance to be somewhat more muted given the timing of our price increase that we expect to begin flowing through our P&L in the second quarter with the balance of the positive impact to then flow through Q2, Q3 and Q4. I think, the combination of our attractive growth prospects, our longstanding commitment to our generous dividend policy, and a strong free cash flow profile truly sets us apart from the rest of our peer group. I remain extremely excited by the portfolio that we have assembled over the years and believe that it's positioned us well as any other company in the industry to generate strong returns for shareholders. And as Bruce noted earlier, we expect to generate strong cash flows in 2018 and beyond that will reduce our total net debt even after taking into account the nearly $125 million per year that we expect to pay our shareholders in the form of dividends. I'm now going to turn the call over to Ken to make some brief introductory remarks. Ken? Kenneth G. Romanzi - B&G Foods, Inc.: Thank you, Bob. It's been a pleasure to join everyone on the call this afternoon. I'm delighted to be part of the B&G family and it's been an exciting three months since I joined B&G back in December. As Bob and Bruce mentioned earlier, we have a tremendous opportunity in front of us here at B&G. We have a portfolio that's heavily tilted towards strong categories such as frozen vegetables, better-for-you snacking, spices and seasoning, among others, which are growing well in excess of the general packaged food space. We have brands that matter in these categories like Green Giant, Pirate's Booty and Back to Nature, all of which hold a special place with consumers. We're all very excited about our growth initiatives like Green Giant frozen innovations for example or by our opportunity to expand distribution for Pirate's Booty and Back to Nature, both of which are must have brands for their core customers and very much in line with the interests of today's consumers. Our spices and seasonings business has so many attractive brands like Tone's, Spice Islands and Mrs. Dash. These benefit from attractive category dynamics and consumers who want to prepare healthy food at home and make these meals taste just a bit better by seasoning them with our products. Now in addition to these many opportunities to grow the business, I also see many possibilities to help run our business more efficiently. While I think it's premature as we stand here today to set a number, we believe we have ample runway to offset the recent increases in freight and warehouse costs, and other inflationary pressures, with the pricing we have already taken, as well as some cost-cutting initiatives that we will begin to undertake this year. I look forward to giving you these updates on our brand strategies and other initiatives next quarter. Bob? Robert C. Cantwell - B&G Foods, Inc.: Thank you, Ken. With that, I'd like to turn the call over to the operator to begin the Q&A portion of our session. Operator?

Thank you. And we will take our first question from Farha Aslam with Stephens, Inc. Please go ahead.

Hi. Good evening. Robert C. Cantwell - B&G Foods, Inc.: How you doing?

Thanks. I've a question about your margin. Wasn't 2017 margins anticipated to be a bit more subdued? And weren't we anticipating a margin recovery in 2018 to be kind of a bit closer to the 2016 level? I'm just surprised about your margin guidance being as subdued as it is. Any thoughts on what is going on with the margin? Bruce C. Wacha - B&G Foods, Inc.: Sure. I mean, yes – sorry, Farha. I'm – sure. Certainly, we expected as we came into the fourth quarter to have better results and kind of really drive some better margins there, and we were challenged by a few things. One is certainly the mix of products we sold. But more importantly, some of the pressures we're really seeing in the market really driven by freight, a little bit of warehousing, but truly freight. The commodity pressures plus or minus not really a big deal for us, but freight has been a major factor. So, as we look at 2018, we've taken a kind of a more conservative look at this as – we have a new baseline. What we did in 2017 is what we did. We know we're getting hit with really one major piece of cost pressure in 2018, which is freight, which is going to hit us for about $15 million. So, minor plus or minus between commodities, other expenses such as salaries here, fringes, packaging, offset by as Ken said some real – some cost savings programs, et cetera, equate when you put it all together, maybe another $5 million for about $20 million in total. We know we've put price increases in place between list price and freight programs to generate around that $20 million hopefully plus. And then, just kind of – but that kind of puts us back to somewhat more of a margin neutral to what we did in 2017. So, our guidance here is really normalize B&G sales growth of about – on our base business about the 2% with half of that coming from pricing, half of it coming from volume. And then on top of that, kind of nine months of Back to Nature. But, when you kind of put everything aside, really at margin levels that look and feel like 2017, and I think that's our true baseline as we go forward to build off of. And we'd love to see an improvement if we get more cost savings than expected, and we got a lot of plans for future cost savings in this organization. But as we look at 2018 after a rough 2017, some good and some bad, we're really looking at going forward in 2018 and delivering the sales growth, not huge sales growth here, approximately about $90 million at the midpoint of our guidance with a good chunk of that coming from Back to Nature and keeping us ourselves margin neutral. We don't expect margins to go down and maybe there is some upside, but we've kind of built this more on a margin neutral basis.

That's helpful. And when we look at your cost savings program, could you give us some context about the amount of cost savings and the sources of cost savings that you anticipate? Robert C. Cantwell - B&G Foods, Inc.: Sure. I mean, I'll let Ken kick in too. We haven't – so, when we think about cost savings here, there's a lot of potential future cost savings and a lot of current things. None of those we expect to be large in 2018. So, there's certainly things we're starting on that will be 2018 events and into 2019. So we'll see some benefits this year which we've kind of built into the minor guidance coverage because we don't have a lot of other major cost pluses or minuses in a big way that don't net itself kind of close to that $5 million number outside of freight, but there is a general relook at everything we're doing here, in addition to in trying to in the future, move margins forward. As opposed to just living with this baseline and growing off this, we think there's real potential longer term, but 2018 we're really looking at programs that are starting as we speak. Some things are easy to pick off, but there's a number of things that are much larger cost savings projects including distribution consolidation, et cetera, that will extend way beyond this year, and we really won't see the fruits of those benefits in any big way until more toward 2019 and 2020. Kenneth G. Romanzi - B&G Foods, Inc.: And I'd add that the cost we're going after is the cost of goods. So as reported, the $1.2 billion. And as Bob mentioned, we see opportunities as this company is growing so big so fast. There is opportunity to optimize things like our warehousing and transportation network; the mix of our customers have changed given the businesses we've acquired; manufacturing network as well, where we have 10 of our own facilities, but we also have a lot that's externally produced. So optimizing those networks with an eye towards reducing cost, but keeping and increasing high levels of quality in our products, are really the areas that we think has a lot of potential opportunity. Because the company has done such a great job of integrating all these businesses, but now as you step back and look at the map of the U.S., or map of the North America, plants can be in different places, warehouses can be in different places, how do we optimize, how we make and get those products to our customers? Robert C. Cantwell - B&G Foods, Inc.: And then, as I said before, and kind of into in what Ken said, later this year, we'll be able to identify some of those bigger projects that are more longer term. And kind of put a more definitive number. I think, the important point of this call is we are really comfortable that the small pricing we need to put into effect to cover the freight increase and really the minor other costs, we've put in place already. I mean, it takes about two months for customers to roll it into their system. So, we won't start seeing that until really beginning to mid-April, but we're well on our way. So, we announced this a few weeks ago and that's in place. And, the larger projects, as Ken talks about, potentially have some real dollar savings longer term and we'll be able to give better guidance to that later in – later this year.

Understood. Thank you.

We'll take our next question from Karru Martinson with Jefferies. Please go ahead.

Good afternoon. When we look at the Green Giant kind of the legacy shelf-stable side of the business, how big is that in business today and what's kind of the outlook for that one given the pressures that, that category has had? Robert C. Cantwell - B&G Foods, Inc.: It's about $125 million, and honestly shrinking. So, we know that a major customer that we lost here in 2017 as an example is we started experiencing those losses in the fourth quarter. So, that will continue through the next nine months of this year. And then, in addition, consumption trends are just generally weak in the category. So, as we think about numbers and we build sales plans, we built plans that takes that – those businesses down. I mean, the shelf-stable Green Giant business down further in 2018 which is a little bit offsetting. We have tremendous frozen growth heading and will achieve in 2018. This will be a little bit of a drag. But Green Giant will be up very nicely in 2018, but shelf-stable is a piece of business that has just been very difficult for us. And we have really two pieces of shelf-stable business. We have the Green Giant brand that competes in kind of the holiday season stack them up and sell them cheap kind of business with everybody else, and then we have a brand called Le Sueur that's around $30 million – a little over $35 million in sales, rock solid stable and doing extremely well. So, the challenge that we see is on this other $125 million Green Giant business that we know is shrinking and we expect to shrink throughout 2018.

Okay. And I certainly can attest to the strength of Pirate's Booty in kids' lunchboxes. But when you look at the acquisitions, are you looking more in – or potential acquisitions. Are you looking more into kind of continuing that snack category or where do you see the kind of the plug-and-plays for you guys? Robert C. Cantwell - B&G Foods, Inc.: Well, I think what's really important for us is to – I think, acquisitions are extremely important. It's part of our model, and acquisitions that deliver products that today's consumer wants. And I think that's what we've done in our last number of acquisitions. So, it doesn't have to Green – from Green Giant frozen to spices and seasonings to Victoria premium pasta sauces, all in categories that are growing and then the acquisition we did this year, Back to Nature cookies and crackers and various snacks, in categories that consumers want to buy in, and kind of better-for-you per se. So, it's not just about snacks, it's really about categories that make sense. And today's consumers are going to – certainly we'd love to buy another brand like a Pirate's Booty. There's not a lot of those out there. So we would not venture against a snack – we would not venture against for a upstart snack brand that's really a couple of years out of the box. When we bought Pirate's Booty, we bought a brand that was around from I think the late 70s, or whenever it kind of kicked in or early 80s. But it was a brand that had real legs on the upside, but it was a brand that was very stable for the long-term. So certainly, those kind of brands are what we're going to look at. But truly the real answer is we could buy another frozen brand, we can buy shelf-stable, we can buy snacks, but we want to be in categories where consumers are shopping more today, is really the goal. Bruce C. Wacha - B&G Foods, Inc.: Yeah, and Karru, the other thing real quick to add to that is we've always been a disciplined buyer. And so while there may be some brands and some exciting categories that we like, we're going to be pretty careful in terms of what we're willing to pay for them.

Thank you very much, guys. Appreciate it.

Our next question will come from Bryan Hunt with Wells Fargo. Please go ahead.

Thank you for the question. My first question is, could you discuss kind of the strong sales gains both in Green Giant frozen, and seasonings in greater detail? How much is shelf space gains, new customer penetration? And maybe same store sales, or overall velocity. Robert C. Cantwell - B&G Foods, Inc.: Well, I mean Green Giant frozen, probably the easiest one to understand. It's all about innovation and it's all about the innovation products that we launched in late 2016. Supplemented them further in 2017 and launched our newest versions, spiralized veggies here in 2018 and more to come as we go forward. All of that's been fundamentally distribution gains, getting more space, getting more shelf space in total and it's really moved the needle and we've been able to take a business and do $80 million – basically $80 million in our first full year out of the box on that and really help move the entire category. And then, our competitors have followed with most of the products, not all, and we're all moving the whole category together and the turn. And we're actually adding products which is very important to retailers. We're adding products that turn faster than the traditional products in frozen. So, the turn on shelf has been terrific, and like I've said, we've got the spiralized in the market now going in distribution and going into distribution as we speak across this country. Early indications are turns are even better than what we saw on Riced Veggies, for example. So, all positive and all growing and we expect some huge gains on Green Giant frozen here in 2018 and we don't think it stops in 2018. We think there's a lot of runway on Green Giant frozen. Spices and seasonings has been about, we're a decent sized spice player now. We're as we said about $350 million in sales. We make an impact in spices. We're certainly not as big as the number one guy, but we have a reason to be in where we sell and our customers have been extremely supportive. And as we kind of looked at kind of a bigger picture spices program, we got some very strong brands in our portfolio starting with Mrs. Dash and brands like Spice Islands and Tone's. And, we also have tremendous customer relationships both at club and retail along with food service that we just expect continuous gains. You're not going to see going from $220 million to $260 million this year on the acquisition we bought. You're going to see us growing hopefully better than the category that over the last 52 weeks has grown 2% to 3%, but you're not going to see gains like that. That was a little bit unique with a few customers and just some smart salesmanship along with some real customer support. But, hopefully, we can outgrow the category, but we're going to grow within that category numbers going forward. But we see a lot of growth long term and we're in the right category because that's where consumers shop today.

Great. And then my follow-up is, you all continue to discuss acquisitions and then maybe having $1 billion of firepower for an acquisition. But, if you look at this year, you kind of missed your EBITDA and your free cash flow target. Does that make you feel like you need to kind of adjust your balance sheet leverage or the total risk of the business going forward and the potential size of the acquisitions that you may be targeting? Robert C. Cantwell - B&G Foods, Inc.: Well, a couple things. So, I think Bruce said before, we've always been very conservative on how we go about acquisitions. So, kind of being at net leverage of about 5.8 times at the end of this year – at the end of 2017 and then looking out in 2018, if we don't do an acquisition and the cash generation we're going to get from working capital and EBITDA would take our leverage down to 5.2 times. We would do an acquisition tomorrow. But at the end of the day, we're not going to be sitting here and telling you we took leverage up to 6.5 times. That's not who we are. We don't want to do that. So, getting our balance sheet reset that's why we have a formalized program on reduction in inventory. The inventory build had a lot of components to it in kind of transitioning Green Giant from the seller in different pieces along with a lot of innovation build up on all those new innovations. So, we know between that which is the majority of the inventory reduction plan of about $75 million to $100 million will come from Green Giant and then there's some just across the board as we've built an inventory management team here who's very sophisticated and very strong. We're really comfortable if we had to pull out upwards of $100 million out of the inventory. So, 2017 was truly a one-off year from cash generation. Investors should just understand that B&G's adjusted EBITDA minus cash interest, CapEx and cash taxes are going to generate 50% to 60% of that EBITDA in the form of cash, and we'll get a very large benefit this year reducing working capital from the inventory. But then on a go-forward basis, we can maintain working capital. Assuming there's no other acquisitions, we'll be maintaining working capital where it is, and that cash generation will just be there at 50% to 60% of EBITDA. So, 2017 was a lot of inventory build and a lot of transition as we really took on, even though we bought Green Giant at the end of 2015, there was still pieces of it that didn't really roll into our full control until 2017. And then on top of that, we had spices and seasonings along with Victoria then Back to Nature here in the latter part of the year, we truly spent the year fundamentally internally doubling the size of everything we ran here over the course of 2017. We are now staffed, system-wise ready and able to do acquisitions and manage it appropriately. But, the Green Giant wasn't what I would call mismanaged, we had to build a lot of that inventory for some major transitions including closing down a very large plant that was operated by General Mills and moving it into – a lot of that production into our plant in Mexico along with other co-packer. So, that was a one-time inventory build that we know is just coming back in cash here in 2018. But, this is a very high cash generating business, and it will be for a long time to come the way we are structured. And certainly, the – we don't – we never were a high cash taxpayer. We're now that much lower of a cash tax payer. As we look at EBITDA guidance of $347 million to $365 million, we're only looking to pay in give or take $15 million in cash taxes on all that profitability. So, the way we buy things and certainly the tax factors help that going forward. So, we're going to be a high cash generator here.

So, Bob, just to clarify. You won't take leverage to 6.5 times to do an acquisition, is that a fair... Robert C. Cantwell - B&G Foods, Inc.: There's no need. We would have – yeah. No. For us to buy something that we would need to – we would have to be back in the equity markets. We could basically do it as Bruce said because the cash is available to us. We would not be prudent to do that. So, we would have to do a combination of equity and debt, if we were paying a multiple, that was going to take our leverage anywhere near that.

Okay. Robert C. Cantwell - B&G Foods, Inc.: So it wouldn't – we could afford it, we could pay the interest, we generate a ton of cash. It's just not the – because we always have to have the balance sheet ready for the next acquisition. And we don't want to be out of the market for acquisitions. So taking our leverage too high would just take us out of the market completely, and that is something (51:43).

Very good. I appreciate it. Thank you. Robert C. Cantwell - B&G Foods, Inc.: Sure.

Our next question will come from Cornell Burnette with Citi. Please go ahead.

Hello everyone. Robert C. Cantwell - B&G Foods, Inc.: Hello.

All right, just had a few – really on focus in on gross margin. So it appears in the guidance that look, you got pricing that you've put in place that should mathematically offset the impacts of freight and some of the other costs that you have going on. But in the quarter, you said there was about a $5 million to $6 million shortfall in kind of the way you saw EBITDA coming in, related to kind of weaker sales on the canned side of the Green Giant business and what that means. Going forward, the category is still weak and you've got the lost customer that it's going to be in there for the first nine months of the year until you lap it. So I just was wondering, it seems that the guidance would imply that gross margin is sort of flattish, and I know the pricing takes care of the freight cost, but you still have this overhang possibly from the canned business? So I just wanted to see if I can get some thoughts on – just some clarity on how I need to think about gross margin next year in context of that. Robert C. Cantwell - B&G Foods, Inc.: So again, on the canned piece, and I'll let Bruce kind of kick in. So what we know today is weak consumption trends and that's just general for everybody. And we have a customer loss that we have nine months left of it. But we also know that during 2017 in the early part of the year, we had other losses and other distribution losses that really we were also losing ground then too. So, kind of year-over-year comparison is relatively flat from kind of distribution losses that we're going to experience in 2018 versus 2017 from what we know today. So as of today, we don't know of any other distribution losses. We don't expect it, but can I guarantee that something happens sometime during this year or next year we loss some other distribution? No.

And then just in terms of the category and just takeaway or specifically for your business once you get past the distribution losses. I mean, what type of takeaway numbers should we be looking for, is kind of thinking of mid-single digit declines in the business within the bounds of what you're looking for or is it more kind of continuing to see kind of some of Nielsen numbers down double digits? Robert C. Cantwell - B&G Foods, Inc.: So, I think as we look at shelf-stable, it's two fold. So, the customers that we haven't lost and where we're doing – we're actually performing pretty well, and our numbers look pretty good. But I think the general outlook would be this category is probably declining mid-single digit, so kind of a 4% to 6%, 5% number is what – until something changes, we're assuming in our modeling going forward that shelf-stable vegetables are going to continue to decline even though we are performing better than that at the customers we're selling to today. But there's nothing that we're going to do to fix long-term consumption trends and we'll see where it ends up. So, hopefully it's not as bad as kind of 4% to 6%. I don't think this is double digit declines on consumption trends. There's no reason that all of a sudden for a long period of time that people have just run away from this – it is still a very large category at supermarket retailer shelf, between the lead brands and private label being a big piece of those, I don't believe it's going away. But I would not model something that's say's it's not going to keep declining. And I think mid-single digits is a fair look at that decline today.

Okay. And then the last one is just surrounding pricing. It looks like kind of full year pricing has to be up a point or a little bit above that to offset inflation. Just kind of when I look back in the model maybe the last time we saw pricing at that 1%, 1.5% range, we saw volumes down more than that, down about 3%. I know that the portfolio has changed a bit now with Green Giant, but maybe with some of the other brands. Can you just talk about kind of how you perceive the risk of just volume elasticity as you go through the year and maybe it varies by categories, but any information you have there would be helpful. Robert C. Cantwell - B&G Foods, Inc.: Well, I think, in general we spend a lot of time looking at elasticity when we when we've done this. The pricing we're putting in place moves the retail price, $0.10, $0.20, these are small price increases for most of what we're trying to do here. And we don't – today we're not seeing that as an issue that we were able to achieve that and hopefully we have some upside as we look at further and deeper at some of our trade programs and what makes sense and what doesn't. But we're very comfortable with this. And we went with kind of what I'd call a smaller price increase than a larger one really just to cover that freight piece and really send the message that that list price change $0.10, $0.20 at retail. And the difference between this price increase and kind of the last price increase we would have done that would have been 1%, 2%, is we're doing this more across the board, so when we look at a 1% price increase on $1.7 billion, that's between $15 million and $20 million, but it's across the board. When we did it before, it was much more specific so the movement at retail on the brands we moved price was not $0.10, $0.20. It was $0.30 to $0.50 and that was a lot more meaningful than what we're doing here. So, we did this more of just – this is a cost increases industry wide, and in other industries not just food, driven mostly by freight, so this is spread across our portfolio which makes the retail change very small and we're very comfortable that's achievable and sustainable to stay and achieve because of the way we approached it this time.

Understood. Thank you.

We will now take our first question from Ken Zaslow with Bank of Montreal. Please go ahead.

Hey. Good evening everyone. Robert C. Cantwell - B&G Foods, Inc.: Hello. Bruce C. Wacha - B&G Foods, Inc.: Hi, Ken.

So, let me first start off with I'm glad that you guys went through and got $19 million. But when I look at the midpoint, I get to $27 million. So, there's still an $8 million discrepancy. Can you talk about, unless you were forecasting to miss to begin with, so is there another $8 million that you could talk about where that came from? That's my first question. Robert C. Cantwell - B&G Foods, Inc.: Well, the bigger piece of this is we got through kind of the quarter and the shelf-stable piece hit us way more than expected. I mean that's part of it. Nothing else really kind of stares out at you. We truly believe coming into this quarter based on where Green Giant should finish, we were going to blow away the top end of the guidance on sales, and we were – and the shelf-stable penalty on Green Giant hurt probably our model more than anything else in addition to some of those costs. There's some smaller costs that we didn't get into – that are not huge dollars, but part of this is our feeling of being closer to the midpoint was much more driven by kind of really beating the top line in a much bigger way. And, everything that we really felt coming into the quarter until we lost a large – in addition to just general consumption trends on shelf-stable being down, losing that customer really does penalize us in a very large way. And then in addition, we had difficulties with one or two key retailers who were managing a little bit of their own working capital at the end of the year and didn't take shipments in that last week to 10 days. That really was meaningful to us. It's somewhere between $4 million to $7 million of sales that are just – that all would – all that would came with us some freight to ship it because all the other costs were in our numbers already. So that was very meaningful piece of it too. I think, it's really about the top line. So, there's no other cost that came at us that surprised us that was unexpected that really kind of hit us hard. And, the shelf-stable piece really was a big piece of that, and then the end – finish at the end was the really other big piece of that. In addition to, as Bruce mentioned, the freight and some of the other little pieces. And then we just got, I mean honestly, we got burnt by a $1.5 million at the end here for just the exchange rate on the peso that flipped right back. And we've already seen the benefit, back of that in January. So we're going to have that benefit in the first quarter, but we got penalized in the fourth quarter of last year.

Okay. My next question is, your dividend yield tomorrow will be 7% given the opening of – given the aftermarket. Robert C. Cantwell - B&G Foods, Inc.: Yes.

How do you – how was there a better use of your capital then to even think about acquisitions than buy back your stock? To me, I think, you interest cost – your interest expense can't be that high, you can make a spread on that business just by financial engineering. Why would you even consider or think about another acquisition when your yield on your stock will be 7%? And I don't see where else you can get that 7% yield on a free basis. Robert C. Cantwell - B&G Foods, Inc.: I completely agree with you. I don't know where you get that 7% yield either on a cash flow business like ours. So it's a fair point, and it's something from a board level that we're certainly discussing. Depending on where this – where our stock settles in as opposed to just the initial effect of results and see where it settles in. We got to be good stewards of our capital and we've got to use it appropriately, and that's a possibility too. The only negative about buying stock back is you just use your cash to take leverage up. So none of that's good. But ultimately we got to be smart stewards of capital and do the right thing for investors in this overall business. So, all of that's on the table.

I know I'm not supposed to ask a third question, but I'm going to go for it anyway. Ken, when you take on this role is there a system's improvement that you're looking at? What is the process to which you will assess this because there seems to be some more opportunities on an operational level to potentially improve> How do you – I get what you said of some of these cost savings opportunities, but it seems like there is bigger picture here. Is there a ZBB, is there a deeper potential to change the systems to do more than just hey, kind of put some Band-Aids on some cost structure? What is your thinking and how long will the process take? Kenneth G. Romanzi - B&G Foods, Inc.: Well, again as I mentioned before, the company has gotten so big so fast with so many different acquisitions and so many different types, whether it's plants we've acquired through Green Giant or Back to Nature, which came with 50 or 60 co-factories. There is – it's not Band-Aids at all, it's really taking a step back and saying how is a $1.7 billion company with a $1.2 billion cost of goods infrastructure that no one has ever really looked at $1.2 billion cost infrastructure at this company because it hasn't existed that long. So, where other companies spend years integrating things and spending time doing asset rationalization and logistics rationalization, we haven't really done any of that. So, we think there is a pretty good runway of multi-year cost reduction programs to better align our manufacturing, warehousing and distribution to our customers. That's within that cost of goods beside the cost of raw materials which we have a really strong procurement department that buys very well. So, it's really about the conversion and warehousing and transportation costs where they have not been optimized at all here because the company has been spending so much time buying the companies. Now that we're a $1.7 billion company it's how do we optimize what we have and be ready for the next one. So, I'm a fan of internal manufacturing. When we make things ourselves, we usually make more money than when we buy it from somebody else. Now, we can't make everything ourselves. We have a lot of dispersed product lines. We have a lot – we have upside in our own manufacturing capability in terms of our capacity utilization. There are things – there's upside there. So, so it's a multiyear program. And as Bob mentioned, these are longer term initiatives. They take a while to design and they take a while to execute, and we're going to have to prioritize from size and price, to ease of execution and balance that out with multiple years. And as Bob mentioned, later on this year, we'll be able to identify what those projects are and what kind of cost savings there is associated with it.

And there's real productivity opportunities here. Kenneth G. Romanzi - B&G Foods, Inc.: I hope so. Thank you.

Once again, we ask that you please limit yourself to one question in the interest of time. We will move next to Neel Kulkarni with Credit Suisse. Please go ahead. Neel Kulkarni - Credit Suisse Securities (USA) LLC: Hi, everyone. This is on behalf of Robert Moskow at Credit Suisse. So, the first question is do you expect a negative impact on your ACH business from the Sam's Club store closures? Robert C. Cantwell - B&G Foods, Inc.: So, yeah, certainly, losing 60 plus stores of Sam's affects that business. But, the growth at Sam's has been so substantial and continuing to grow more items, more distribution. We feel it more than offsets that. And in addition, kind of that acquisition itself we've got a lot of benefits outside of just Sam's whether it's food service or other major retailer that we've moved the needle. And working with Sam's at the end of the day, they don't want to lose much ground in total spice sales, so they're working together to try to make sure we maintain that business. But in addition, they've been very supportive of additional things at existing outlets. It's never good when an important customer closes 60-plus of their outlets but we've had many strategic conversations with them and we're all working together hand-in-hand to come out ahead on this because Sam's doesn't want to fall backwards on spice sales either. Bruce C. Wacha - B&G Foods, Inc.: Yeah. And keep in mind, we're actually under indexed to the whole Walmart Sam's combination so we continue to see this more as opportunity for us.

We'll take our next question from Eric Larson with Buckingham Research Group. Please go ahead.

Good afternoon. Thanks for taking my question. Just one here regarding your leverage. When you refinanced your balance sheet in I believe late November, I think, you actually borrowed an incremental $200 million at the time which I thought that's probably at 5% plus, that's about an annual $10 million of interest expense and we were thinking that maybe that would be reinvested at some point maybe in another acquisition or something. Is that fair to say? And is your guidance on interest expense assuming that that money does not get reinvested at this point? Robert C. Cantwell - B&G Foods, Inc.: So, right now we are sitting on cash or I guess at the end of the fourth quarter, we were sitting on cash of just over $207 million. That is balance sheet cash that includes that cash that we raised in that financing transaction. And as we said earlier, we will be opportunistic with that whether it's looking at M&A ideas, whether it's retiring some of our term loan debt, or whether it's opportunistically buying back shares. And yes, the answer to your question is we are baking in the full debt load into our interest assumptions.

Our next question will come from Andrew Lazar with Barclays. Please go ahead.

Good evening, everybody, and welcome Ken. Kenneth G. Romanzi - B&G Foods, Inc.: Thank you.

I want to come back just quickly to the fourth quarter. On the third quarter call, I think you'd given a bridge where you laid out how you expected to get to sort of the EBITDA for the fourth quarter. And I think, it was $20 million to $25 million from marketing timing, $8 million to $10 million from acquisitions, and I think $1 million to $2 million from kind of the remainder of the portfolio. Could you quickly just go through those three things just to bridge it, to kind of what you gave us a bit earlier? It sounds like marketing wasn't quite the source of EBITDA given some incremental investment that you thought, and then I guess, it's the remainder of the portfolio that fell well short of the $1 million to $2 million. Robert C. Cantwell - B&G Foods, Inc.: Right. So I apologize, and I'm just making sure. So what we would have said in a bridge was $14 million to $15 million. And I think, we probably said $14 million in the third quarter, but I might have said $15 million for the fourth quarter... Bruce C. Wacha - B&G Foods, Inc.: For the marketing. Robert C. Cantwell - B&G Foods, Inc.: ...for the marketing. And we came in at $11 million. So we decided with the rollout of spiralized, there was some movement, and we call sliding marketing too. There was a reason to spend the money and spend some more money upfront to get this on shelf, and it's performing extremely well. So that was just a decision internally. Where we really got hit – Bruce, can help me with this bridge, is really just on the sales line. We expected Green Giant to have two pieces of growth in the fourth quarter, one is to have about $10 million of sales incremental that we had lost in the prior year when we took it over from General Mills, and in addition continue to see the growth in the innovation year-over-year. And that was going to add to Green Giant sales somewhere between $25-ish million of sales is where we thought net, the plus where we could end up, somewhere between $520 million to $530 million, but we really believed it would be closer to $525 million to $530 million. And what we really saw is we've got the innovation plus we've got some of that core back, but we lost a tremendous amount more than ever expected on shelf-stable on Green Giant that fundamentally we had a flat fourth quarter on Green Giant, which killed this roll – instead of being up $25-ish million that would have generated EBITDA margins – all the costs are in place, EBITDA margins of 25% plus on that generation turned into flat sales and we didn't see that. And then we – compounding on that is we really got hit further and deeper and now fully understand and fully have better contracts and understand what's in place and in store for us on freight as we look at 2018. So, we were getting hit with a lot more spot. Our provider who handles our freight is a big provider, et cetera. We had contracts and we had spot and we got hit with a lot of incremental freight here along with fuel surcharges. The other thing that we don't really talk about a whole bunch is when the price of oil kind of inched up into the $60 a barrel range, fuel surcharges in the fourth quarter which we didn't have in our plan hit us for about $2 million more than the prior year on same sales. So, that was a hit. Just the overall freight was a hit. We now know what that hit looks like as of today for the rest of 2018 above and beyond what we spent in 2017 which is about another $15 million. So, the only wildcard above and beyond that $15 million for us today would be where fuel surcharge goes. Now oil is back down, so we're not feeling that's going to be a big plus or minus to us in 2018. But we do know we've got just contractual rates that are hitting us for upwards of $15 million. So, really the two big pieces of the bridge that were going to drive us to the finish line was really the incremental sales. A lot of it coming from Green Giant, but then we also fell short a little bit more on our base than we thought we would be better. And that was really driven by our key customer or two, who didn't let us ship in here in the last week to 10 days, and let us ship very little in and then just took that all in in the first and second week of January. So, it wasn't a good finish, it's not where I expected and not where I wanted to go and certainly not where I wanted to end up, but I think as we go forward, we look at this as we don't want to promise a rollover that could be somewhat positive and some of that that comes back. We look at this as the baseline we did for 2017 and we grow off that. So, we have upside that's great, but there's no look and promise of something to come that's more than just Back to Nature rolling in plus normalized small growth for B&G, and margins kind of margin neutral across the board is the way we've approached this guidance. Bruce C. Wacha - B&G Foods, Inc.: And the last part of your question I think was on the acquisitions and other than where they were impacted by that overall freight cost, those acquisitions being ACH, Victoria and Back to Nature all performed in line... Robert C. Cantwell - B&G Foods, Inc.: Gross numbers. Yeah. Those were fine.

This concludes today's question-and-answer session. I'd like to turn the conference back over to management for additional or closing remarks. Robert C. Cantwell - B&G Foods, Inc.: Okay. Just want to thank everybody for joining the call today and look forward to reporting some very good results as we head through 2018. Thank you.

This concludes today's conference. Thank you for your participation. You may now disconnect.