Good day. And welcome to the B&G Foods Third Quarter 2019 Earnings Call. Today's call is being recorded. You can access detailed financial information on the quarter in the company's earnings release issued today, which is available at the Investor Relations section of 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 reference on today's call to the non-GAAP financial measures, adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, and base business net sales. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release. Ken Romanzi, the company's President and Chief Executive Officer, will begin the call with opening remarks and discuss various factors that affected the company's results, selected business highlights and his thoughts concerning the outlook for the remainder of 2019 and beyond. Bruce Wacha, the company's Chief Financial Officer, will then discuss the company's financial results for the quarter, as well as its guidance for 2019. I would now like to turn our conference over to Ken.

Good afternoon. Thank you all for joining us today for our third quarter earnings call. This afternoon I'd like to provide you a perspective on our third quarter results before I turn the call over Bruce to provide more detail of our financial performance. Over many years B&G Foods has had a strong track record of increasing sales, profitability and cash flow through organic growth, disciplined acquisitions of complementary branded businesses and new product development. Unfortunately, we have not lived up to our track record over the past two years. But I believe that our results this quarter show that we're making the necessary improvements to our business, and that we're beginning to return our company to a path that will allow us to achieve our short and long-term goals. Highlights of the third quarter, which I'll discuss more fully in a few minutes include: First, the ongoing integration of Clabber Girl which is proceeding very well; Second, the successful completion of the largest debt refinancing in company's history at very attractive interest rates; Third, continued success of our new product innovation; Fourth, achievement of price increases in a typical marketplace. For the first three quarters of 2019, we’ve generated approximately $16 million in price increases which is trending at the high end of our expected range; Fifth, increasing momentum behind our cost savings initiatives projected to be $20 million for the year primarily in logistics costs; And six, continued strengthening of our organizational capability, including organizational redesign, personnel enhancements and system improvements such as our new Oracle JDE ERP system and trade spend management system. In the third quarter of this year, net sales and adjusted EBITDA declined primarily due to the divestiture of Pirate Brands in the fourth quarter of 2018. Excluding that divestiture, our net sales increased…

Thank you, Ken. Good afternoon, everyone. As Ken just outlined, we had solid performance in the third quarter, as we reported net sales of $406.3 million and adjusted EBITDA of $86.2 million. Adjusted EBITDA as a percentage of net sales was 21.2% for the quarter. After adjusting for approximately $26.6 million in net sales for Pirate Brands in the third quarter of 2018, net sales increased by $10.3 million, or 2.6% over last year's third quarter. Net sales benefited in the quarter by $20.1 million resulting from the acquisition of Clabber Girl in May of 2019. Base business net sales increased by $9.8 million or 2.5% largely driven by declines in Green Giant and our spices & seasonings business. Outside of Green Giant and the spices & seasonings business, nearly 60% of our brands were up for the quarter. Third quarter net sales benefited from approximately $5 million of price increases, which were largely driven by our list price increases as well as improved trade spend optimization particularly for Green Giant. Unit volumes exclusive of the sale of Pirate Brands and including our acquisition of Clabber Girl, increased by $5.3 million. As Ken mentioned earlier, Green Giant had a softer quarter than anticipated with net sales down $6.1 million, or 4.9% as the brand was negatively impacted by a couple of discrete events, including a trade optimization program that's designed to improve profitability on our recently revamped bag-in-a-box line, temporary out of stock on corn-on-the-cob, following a second short crop and the timing of the Canadian Thanksgiving, which shifted from the third quarter a year ago to the fourth quarter of this year. Each of these events cost us about $2 million in reduced Green Giant net sales for the quarter. On a year-to-date basis performance remains strong for Green…

[Operator Instructions]. Our first question comes from Karru Martinson with Jefferies. Please go ahead.

With the new Green Giant introduction, what are the slotting fees and the profitability of that -- those products? Are they in line with the existing or how should we think about that as it flows into 2020?

The routine we are now on is that we are now launching for the second year in a row -- the following year’s innovation to about a third of the ACV that doesn't require slotting. So the items we’re launching will have no slotting attached to it. For customers that require slotting, they will be able to get that starting in January. So no slotting associated with these products and the margins are as good or better than kind of average of what we've been introducing.

Okay. And as you guys pulled back promotion, was it just broad-based slow down in the Green Giant volumes? I think there's just concerns that this is something that you're not able to pull back on promotions?

There's several -- so many segments of the Green Giant frozen business. There were two segments that hurt us. One was the promotional pull back and that we still believe it's the right thing to do in the non-holiday time frames. And the second was we were out of stock on corn-on-the-cob, those will be past that in the fourth quarter. Our innovation items that we've been launching have been doing very, very well. And so there is no issue with how the innovation is performing.

Okay. And lastly, you talked about the distribution gain opportunities for the acquisitions that you've done. And that you're only in 50% of the geographic areas. What does it take to broaden that distribution that seems to be low-hanging fruit for you guys?

Well, some of the brands are relatively new to our portfolio. So for instance, McCann's, which we just bought last year, we've been growing that -- I think that was up in the quarter like 30% or 40%, now off a low base. But we've been out presenting all year long to customers that, "Hey, this is a new brand that we have. It's a terrific heritage Irish oatmeal." That was well below 50%. I think our distribution -- I think we purchased that brand at something like a quarter of the ACV, and now, we're ramping that up. Victoria pasta sauce, which we bought a couple of years ago, again, an East Coast brand. So it will take slotting dollars and it will take some shopper marketing and some consumers to pull in those customers. And some of it will take innovation. Some of our brands, some of our real legacy brands like Mama Mary's and the now three-year ownership of Back to Nature is going to take some reemphasis in terms of building out, not only strengthening the business in the current customers, but gaining new customers. So we're totally relaunching Back to Nature after a couple of years of soft sales. As we've been cleaning up the product line, we are totally revamping Back to Nature with new graphics, new products and a cookie and a cracker and a granola line in the portfolio, which will not only help current distribution, but is giving us now kind of a resurgence and ability to talk to the customers that don't have it in distribution

Next question comes from Bryan Hunt with Wells Fargo. Please go ahead.

Yes, I was wondering if you could go back over, you talked about a couple of hits to sales throughout the quarter. corn-on-the-cob and a couple of other things and I think you enumerated the sales mix. Could you repeat that for me associated with the shortfall?

For Green Giant? Three things we highlighted for Green Giant, was the trade optimization program, the short on corn-on-the-cob, and the third one was the timing of things getting in Canada. Each one of these I noted were approximately $2 million but the Canada one is tiny obviously.

So you'll get -- so 6 million in total and you'll get 2 million of that back in Q4 more or less?

And we won't have the drag from the promotional because we're not executing the higher price points in the holiday time frame. And we're back in stock on corn-on-the-cob, so that won't be a drag.

My second question is when you look at all the new products that you announced, you said five -- I think $5 million to $10 million of incremental sales in Q4. Can you talk about -- are your retailers just bumping out other brands? Are any of these things potentially cannibalizing your own? Because I buy your Cauliflower Pizza, but now I've got the chance to buy -- crust, now I've got a chance to buy the whole pizza. One, is there potential for cannibalization? And two, who are you bumping out?

The retailers are always adding in the leading items across the portfolio, not just ours, but across the whole range of items, and it's their real estate so they decide. But what we're encouraged about with these items is we're going outside the vegetable set. So as we continue to launch vegetable -- new vegetable items, we always will lose some while we gain some. We always look to have a net gain, but we don't -- but we will lose items in the vegetable set, but we're going after sets that we're not really present in. So we're not very present in potatoes, we're not very present in pizza, we're not very present in pasta. So while our new product development strategy is very consumer-focused by bringing plant-based alternatives, particularly carb replacement alternatives, to the consumer, it's also going to expand our footprint and get net facings of the Green Giant brand beyond just traditional vegetables. We already know in some of our customers who merchandise our Veggie Tots in potatoes -- frozen potatoes, not in frozen vegetables, which is a whole different section and a very large section. And while we do very well when we're merchandising in frozen vegetables, the Veggie Tots would move even better when it's next to the carbohydrate [sort of] alternative, which is a lot of [different] potatoes.

And also, we would very strongly recommend that you continue to buy both the crust and full pizzas

I am carb-light. And then lastly, when I think about packed vegetables and then steel costs and some of the other kind of inflationary items that were unexpected, can you talk about what maybe that carryover cost will be for 2020 and your ability to either price or create additional offset -- cost savings to offset those costs?

We're still developing our 2020 plan, but just to either remind or for the first time, educate people on what happened, in the Midwest, the harvest only happens once a year. So vegetables, both in our canned business, as well as some supply of our frozen vegetables, that harvest happens throughout the summer. The packing of those products are just -- just wrapped up in October. So when we put together a plan for 2019, we don't even know what the 2019 pack is going to be. Normally, most of that is for the 2020 P&L, but because we were so short on vegetables this year, we started getting into this year's pack much earlier than we usually do because last year's pack was so short. This year's pack was also short in the Midwest, but we had to go outside the Midwest in other suppliers, which cost us more to make sure we have enough product for the full year, but at a slightly higher cost. So we'll have some elevated costs with vegetables next year, but as part of inflation that we would expect, and we would continue to have our pricing and cost savings, at least our early plans for 2020 on pricing and cost savings to offset that again.

Next question comes from Michael Lavery with Piper Jaffray. Please go ahead.

I just wanted a little bit of color on some of the retail trends we see in the scanner data and just how to think about turning the tide there. If you look at from July through -- we have ours through mid- to late October, and there's pretty significant declines, especially in the two -- your two largest categories, which are 12 or 15 points worse than their trends in July. Can you just give us a little bit of diagnosis? It's prepared vegetables and spices. It's not corn-on-the-cob because that comes through in our data as plain frozen. Just some of maybe what's happening there and how you plan to turn that around.

Well, again, on frozen Green Giant, our bag-in-a-box line is a very, very large segment of our total frozen business. It accounts for about $140 million, $130 million out of our 500 -- out of our 400 -- almost $400 million in the frozen vegetables. So that promotional strategy did cost a lot of volume, and that's the main drag on our frozen business. We don't expect that to be happening in the fourth quarter because we're not implementing that promotional strategy in that time frame. On the spices & seasonings business, while we had some softness in consumption, we have a lot of business in spices & seasonings that are not recorded by Nielsen. So as Bruce mentioned, our spices & seasonings business, in total, was only off about 3%. And a lot -- some of this promotional timing in certain periods, some of it is distribution -- some distributional losses on some small SKUs, but nothing major that we're concerned about.

A lot of -- some of it’s commercial timing in certain periods, some of it is -- some distribution losses on some small SKUs but nothing major that we are concerned about.

I guess maybe if you look at the total company, I recognized there is unmeasured channels of course, and some are very important but certainly the covers are significant and important as well and the total company pays for example it's gone from kind of down 1.5 to like a down 7. I mean, I guess I'm a little surprised that there is -- I wonder -- I mean it looks sense of urgency you have about trying to sort of turn this around, certainly even on the spices side I think that's important and it's your largest measured category. Is there a little more sense of how you might be able to expect some improvement or are we just going to cycle through these kind of declines into next year?

No. We don't expect that. I'm not sure. By our measure, and the way we -- our Nielsen measure, our total 13-week consumption was down 2.5% for the full company. And spices was down 2.4%. And our frozen trends really hurt us. But like I said, we fully expect frozen trends to turn around. Spice trends should also turn around based on programming that's going in the marketplace. And Back to Nature, especially next year, our snacks business will be a big turnaround given the relaunch of that business with new products and expanded distribution. So there's lots of activity. We're not certainly satisfied with that, but we understand what the consumption was. And on a quarter-to-quarter basis, there can be swings, but we wouldn't project out -- at least by our tracking, we wouldn't project out the fact that we're going to continue to be down 2% to 3% in consumption.

Next question comes from Carla Casella with JP Morgan. Please go ahead.

This is Sarah on for Carla. Can you talk a little bit more about your process of placing your new plant-based proteins in retail given all the hype in the space and how are grocers approaching this shelf space placement differently, and any color that you can give on that?

Well, the customers have enthusiastically accepted our products. There's lots of activity going on. We presented all these 11 new items that we shared with you to our customers a while ago. They've had an enthusiastic acceptance. They are struggling, where they're going to put them all. And there's a lot of activity going on. We are seeing or hearing that actually some of the innovation in frozen is going to move to the fresh space, particularly in the protein alternatives. So we actually see that as an opportunity that might free up more opportunity in the frozen food case as some of the recent entries are focused more on the fresh food case. But it is a battle for real estate. It's not simple. I mean -- and the product that -- the strongest brands and the products that do the best stay on the shelf. And the weaker brands and the products that aren't turning well enough come off the shelf. And our Green Giant frozen business, notwithstanding this last quarter because of -- nothing to do with innovation, our Green Giant innovation products are continuing to be among the fastest-turning items in the category. Our vegetable rice business, which really started -- the cauliflower rice business, which started this revolution to save the frozen food case from extinction, is still growing, and we're now three years into -- two and a half years into distributing that product. So cauliflower rice and all of its permutations that we offer is still growing very well. And it's the oldest of our innovations, but it still has a very, very low household penetration. If you look at the penetration of cauliflower rice versus just frozen cauliflower in general or even all cauliflower, there's a lot of room to grow. And while these items continue to do well, they will continue to deserve space on the shelf.

And then just one more, you talked a little bit about Canadian Thanksgiving. But does the shorter period between U.S. Thanksgiving and Christmas impact you at all?

No, basically -- Thanksgiving basically shifts a week. So it's kind of still in our -- it's still in -- still basically in most of sales in November, particularly since Thanksgiving week is a short week after shipment. So we usually don’t ship five days out of that short week. So it's still within the quarter and most of it’s even within the month of November.

Next question comes from Eric Larson with Buckingham Research Group.

Just a couple of things. Your pricing -- your volume losses still are sort of exceeding your net sales gains. So, is it -- you pull back on promotion, but are you still promoting some things in that mix? And then, so you're getting negative impact of positive pricing plus some slippage from promotional spending. Could you walk through that a little bit?

Well, it's not just the net sales. We are taking the net sales hit in some of these promotional but this isn't a net sales management move. This is about improving margins. So it's really to make better that margin on the business that we go back on. But it’s not a strategy that’s continuing, we can’t keep doing this forever. We pulled it back, and that's over. And now we're going to get back to normal promotional tactics in the fourth quarter. We might have one more quarter of this to go because there's one more quarter that is really not heavy promoted timeframe and that can be the first quarter of next year. But then we'll be -- at least on Green Giant we will be done with most of the heavy promotional strategy shifts. And when we look at our sales softness due to that versus our EBITDA, our EBITDA has hung in there, ex all the other factors, when you think about the volume loss, we really have a lost a lot of EBITDA from these soft volume. And while we don't want soft volume forever, these were the right moves to do for the total business or the total P&L.

Okay. So when you look at consumption -- public consumption data, when would you then expect to start seeing maybe at least in near-term four-week data? When would you start thinking you would see a positive cadence on those numbers?

October data should be better and in fourth quarter clearly in the frozen because of the factors we talked about that won't be repeated in the fourth quarter like it was in third quarter from a sales standpoint.

Okay. Then just one other follow-up here.

So in the fourth quarter we are back to normal promotions on frozen and we are launching new products on frozen. And while you won't see the Canadian Thanksgiving and the consumption numbers in the U.S., that will also help the fourth quarter in our net sales.

And so just on final question, my final question is on cash flow. So your net debt is just under $1.9 billion. If I use a midpoint of your EBITDA guidance, it’s at $302.5 million. So that puts up a 6.2 times leverage ratio on you folks and I think you want to kind of get that closer to 5. So how are you going to try to get 100 basis points off that leverage ratio?

Sure. I mean we're very confident in our cash flow model. It will take time to generate enough cash to bring it down a full turn. But we are committed to doing so. And as a reminder, you are calculating reissues of our third quarter numbers which tend to be your seasonal highs from an inventory, from a net debt standpoint and lowest from a cash generative standpoint.

So your third quarter, it tends to be a significant cash user because you're attacking the vegetable crop. And so I understand that maybe the near-term side of it uses a lot of cash. So you would start seeing that come down as early as fourth quarter here now then, Bruce?

Correct. That is usually our steepest drop in inventories, from the third quarter high to the fourth quarter. But as we go from coming out of the vegetable pack, which drives everything up, to a very, very high seasonal period of consumption, holidays for our frozen and canned vegetables, so it does come down. But in answer to your question, when we share our 2020 plans, while we'll have modest growth, we really believe that we can generate even further excess cash by even better and tighter working capital management. Last year, we had a big reduction in inventory. This year, our inventories are up a little bit, but we believe that between this year and next year, we can even generate more cash than our -- more of a cash increase than our -- even our EBITDA growth will generate because of better reductions in inventory. Not nearly the huge reduction we had in 2019, but we do see the opportunities to tighten up on inventories from where we are today to generate more cash.

And as a reminder, last year's third quarter to last year's fourth quarter included an unwind of that seasonal inventory of something like $87 million.

[Operator Instructions]. Our next question comes from David Palmer with Evercore. Please go ahead.

Hey, Bruce. Just to follow-up on that last thing that you said about the third quarter inventory, because it does look like the operating cash flow has been lower year-to-date, and a big reason for that would be the third quarter in terms of operating cash flow. So I'm sure people are going to have questions about that. Is this going to be a bigger-than-average fourth quarter when it comes to that metric? What sort of operating cash flow should we be thinking about for your full year 2019?

Yes. So last year's fourth quarter, we generated something like $70 million to $75 million in cash from operations. And so, realistic to expect something greater than that in this year's fourth quarter.

So north of $70 million, $75 million. I mean I would imagine you would want it to be higher -- significantly higher than that on an average here. Is that one of the reasons why -- let's just say, it comes in at $80 million, that -- why that $80 million would be that low. I mean, obviously, you want to have more to prove to the naysayers that you could pay the dividend on an annual basis than that. So what are some things that, that $80 million would be held back for when you look at the year-end total?

It will come down to just the working capital cycle. And like I said, expectations are we reduce inventory to something similar this year between the third and the fourth quarter as last year, and that we likely have very much greater than last year's fourth quarter cash from operations number, which is very much in line with what we've done historically.

And then would you -- and then you'd want -- and probably, would you imagine that your inventory levels would be similar at year-end to last year?

They will be a little bit higher. Maybe a little bit higher in the base business. And when we acquired Clabber Girl, it came with a little bit more than $10 million of inventory. So that's obviously an impact as well. But it shouldn't be -- it should be significantly less than where it is right now.

Where also, while we'd love to reduce inventory, we are higher at this point because, as I -- we mentioned, we did run out of some products from the last year's vegetable pack, which means we packed more this year so we don't run out next year, which unfortunately gives us a little bit of a higher inventory profile. But it's to make sure we don't run out of any product by the end of next season before the new pack hits in 2020.

And then when you talked about the consumption data, we were seeing that too, how late in the third quarter. It looked like some of this data was falling off in Green Giant and your spices business. And you talked about some of the out of the non-channel or non-measured channel stuff with spices, but also it should get better. But I'm wondering, is there -- how much of a delta between your non-measured and measured do you think we should see on a sort of medium-term basis for your business? Do you expect your non-measured or your total channel to be outperforming your non -- the measured data on…?

The total channel is definitely outperforming the measured data because our -- at least our measured spices, the way we track all of our spices & seasonings businesses, for the 13 weeks ending September 28, it was down 2.5%. But that doesn't include a very large food service business that's doing very well. It doesn't include some measured items in a very large customer, one of our big -- large club customers. So our sales definitely outperforms consumption.

Do you think the timing of items, promotions and whatnot would have stolen a certain immeasurable amount of consumption percentage points from third quarter and pushed them into fourth quarter?

We do believe we have more promotional activity going on in the fourth quarter than in the third quarter. So we do expect consumption trends to improve on spices.

Alright. Well, thank you very much.

Obviously, that will be up to the consumer voting with their pocketbook, but we will have the inventory out in stores. We have shippers and stay programs. We've got holiday spice programs, baking and alike. So lots of activity will be in the marketplace.

I would like to turn the floor over to Ken for closing comments.

Well, we appreciate your attention and questions today. Like I said, while we don't like to lower our earnings projections, we do believe with a quarter to go, we can tighten the range for you. We do believe that everything we set out to do this year, we're actually doing. While sales could always be a little higher, we like that. We do believe that we battled the cost inflation with the pricing and cost-savings initiatives, saved a little bit of uncontrollables in the area of mother nature handing us another bad vegetable pack and then of course, the effect of tariffs. But save the things that are not in our control. We're very pleased with our progress in executing the things we can control. So we really appreciate it and look forward to updating you on our year-end results in the New Year. Thank you.

This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.