Good day. And welcome to the B&G Foods Fourth Quarter and Fiscal 2019 Earnings Call. Today’s call is being recorded. You can access detailed financial information on the quarter and full year 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 references on today’s call to the non-GAAP financial measures, and 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 fiscal 2019 and beyond. Bruce Wacha, the company’s Chief Financial Officer, will then discuss the company’s financial results for the fourth quarter and fiscal 2019 as well as the guidance for 2020. I would now like to turn our conference over to Ken.

Good afternoon. Thank you all for joining us today for our fourth quarter and full year 2019 earnings call. Today, I’d like to cover three topics. First, I’ll provide a quick recap of fourth quarter and full year 2019 performance. Second, I’d like to share my perspective on B&G Foods performance in 2019 against the plan we developed as a new management team as of April of this past year, and how I view this in the context of our stock performance over the past year; and third, I’ll provide an outlook of where we expect to go in 2020 and beyond. First, a quick recap of our fourth quarter and fiscal 2019 results. During the quarter, we reported net sales of $470.2 million, an increase of 2.6% versus last year, leading to full year net sales of $1,660,400,000, a decrease of 2.4% versus prior year primarily driven by the sale of Pirate Brands. Excluding that sale, full year net sales increased 2.1%. Adjusted EBITDA was $69.5 million for the quarter, an increase of 18.8% versus the year-ago quarter. This resulted in full year adjusted EBITDA of $302.5 million, a decrease of 3.7% versus last year also primarily driven by the sale of Pirate Brands and was at the midpoint of our latest guidance. Excluding Pirate Brands, adjusted EBITDA grew 2.8% versus full year 2018. So all in all, we delivered stable expected performance. I view this as very important because after many years of industry-leading performance, our earnings stumbled in 2017 and 2018 with fourth quarter earnings surprises even while growing sales. So delivering what was expected in 2019 was critical for our new leadership team. Our plan in 2019 was to deliver modest sales growth and cover inflationary input costs with pricing and cost savings initiatives. And that’s…

Thank you, Ken. Good afternoon, everyone. As Ken just outlined, we had a strong finish to 2019 with a solid fourth quarter that continued the momentum that we saw in the business in both the second and third quarters of our fiscal year. We reported net sales of $470.2 million and adjusted EBITDA of $69.5 million in the fourth quarter, leading to full year net sales of $1.66 billion and adjusted EBITDA of $302.5 million for 2019. adjusted EBITDA as a percentage of net sales was 14.8% for the quarter, which represents a 200 basis point improvement over the prior year period. And separately, we generated adjusted EBITDA as a percentage of net sales of 18.2% for full fiscal year 2019, which was in line with our expectations. after adjusting for the $74.9 million in net sales for Pirate Brands in fiscal 2018, our fiscal 2019 net sales represented an increase of $34.5 million or 2.1% over last year. The acquisition of Clabber Girl in May 2019 benefited the company and contributed approximately $53.6 million to fiscal 2019 net sales. Base business net sales, which excludes the impact of M&A, decreased by $22.2 million or 1.4%. Fiscal 2019 net sales benefited from approximately $20.3 million in pricing, inclusive of our spring 2019 list-price increase and our trade-spend optimization program. These pricing benefits were offset by approximately $42.4 from reduced volumes in our base business that were driven in part by our trade optimization program as well as an active effort to reduce unprofitable and lower margin SKUs. Among our larger brands, Green Giant was up $7.8 million or 1.5%, with a strong first half of the year that was driven by both our new 2019 innovations as well as continued growth by previous year innovations, like Green Giant Riced Veggies…

Thank you. [Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Good afternoon, everybody.

Hey, Andrew.

Hi.

Hi. A couple of quick things for me. I guess, first off, I wanted to – just trying to get a sense of the – a little bit of a disparity that we’ve seen over the course of the quarter between the Green Giant sales performance that you talked about today on the call and maybe what we’ve seen in some of the scanner data. Perhaps it doesn’t take into account some of the areas that are growing in that franchise. But just want to make sure I get a sense of what, if any, disparity we see there, because I think sales were up a little bit for Green Giant, and obviously, in scanner, it’s been a little weaker.

Yes. Well, first of all, Green – that’s U.S. Green Giant has had – we had a terrific year in Canada, plus there are some unmeasured channels. But Green Giant sales were softer in total, not quite as soft as what scanner showed, but a lot of that was the effect of our trade promotion reduction program. But we expect to be through that in the first quarter and on to the more normalized Green Giant results with stepped up innovation, and not nearly as much cutbacks on trade post the first quarter of this year.

Got it, okay. Thanks for that. And then I think you talked about what you anticipate for incremental sales in 2020 from Clabber Girl. Do you have something similar for EBITDA? As I recall, you weren’t expecting a whole lot of benefit in 2019 on EBITDA from Clabber Girl. So, even though it’s only in the base for kind of half of the year in 2020, is it more that you get closer to a full year of incrementality on EBITDA? Maybe I was thinking somewhere around $20 million or…

Sure. So Clabber Girl was positive in fiscal 2019. It will be a positive again in fiscal 2020. a couple of million dollars in the first half of fiscal 2020.

Got it. Okay. So, you did actually end up getting some benefit as it went down?

Yes. We got some benefit in the second half of fiscal 2019. And we have Clabber baked into our 2020 guidance that we thought.

Okay. And the last thing would be a little broader from just in the frozen industry standpoint. We just hear a lot from any number of other companies that operate in the space, whether it be your area, frozen vegetables, or more broadly frozen meals and such, about just a lot of change and disruption at the retail level in terms of things that they’re trying to do, whether it be changing timing around freezer shelf resets, moving things forward maybe because of all the innovation being brought to the market. The whole sort of move towards click-and-collect and having to sort of get rid of, let’s say, or take off the shelf, some of the slower turning items, so you have more phasings of the things that have the highest velocity for click and collect and have the holding power at grocery. There’s just a lot of different sort of trends happening and dynamics happening. I was hoping maybe you could put your perspective on it as it relates to what you see. And more specific to your business, if it’s having any impact like that on your business at all. Thank you.

Well, when you just described what you’ve been hearing in Frozen, you could say that about the whole store. So, there are a lot of times where reset timing changes, customers change when they want to. We’ve even stated that we went from two innovation launches in frozen in a year to – our major retailers only wanted to reset the shelf once however, with the increase in innovation from everybody, they have to figure out. They don’t want to pass up and wait to launch the innovation. So, I wouldn’t say Frozen necessarily any more volatile than the rest of the store when there’s lots of innovation that comes. Retailers have their set time frames. Sometimes they change them. It is very hard to get retailers all in the same timeframe, because they are their own individual. Our major new muscle we have to exercise going forward is while we were – we had good rhythm launching frozen vegetables. Our new innovation is now going to go across multiple frozen categories. So, when we recount that we’re going to launch pizzas, breadsticks, a few new items in vegetables as well as gnocchi, that’s four different – that could be four different reset timing because there are different categories within the frozen food side. So, how it pertains to our businesses is, I can’t tell you exactly each retailer when we’re going to launch because it’s going to be multiple dates that those are going to be launched in multiple retailers. So, there is a lot of noise, but I wouldn’t say that frozen’s any more difficult than any other active category in the store.

Got it. Thanks very much for the color.

Thank you.

Thank you. Our next question comes from the line of Karru Martinson with Jefferies. Please proceed with your question.

I guess in that same vein, when do we see the new Green Giant products on the shelf, I wanted to get a little more color on when do we see shelf-stable veggie rice out there. And just a housekeeping. I thought I heard the number of $20 million in new product sales for 2020. Is that correct?

Yes.

Okay. And then how should we think about the cadence? I mean, I recognize that everyone has their own time, but when is this going to be more back half weighted, more front half? How should we think about that?

Well, some of the items, we launched already in the fourth quarter with some customers that took them early, and they’re going to be launching all throughout first quarter and beyond. Specifically, you asked about the rice veggie shelf stable, that’s not going to first launch until the second quarter. But I can’t promise you. I – but the acceptance in the first ship differs by customer all throughout the year. Said another way, $20 million in new product sales aren’t the annual run rate, It’s what we’re adding up based on how best we can project the distribution level we’re going to achieve and when the first ship date is by customer. Imagine a grid of 15 new SKUs across all the retailers all shipping at the – first ships at different times.

Absolutely. And when you guys look at the portfolio, I mean how do you guys balance the volume declines that you’ve been seeing with the pricing? What is the optimum mix that you guys would like to get to in terms of the elasticity of the products?

We’ve answered this question over the past couple of years, because in 2018, we took more just straight-list pricing, which is a little bit more predictable in what the elasticities are. And we came in pretty much where we thought we’d come in. But that’s a base price of maybe $0.10 or maybe $0.20 a unit in everyday price. It doesn’t normally show up in huge swings of volume either way. You might have a little bit of volume downtick, some of our brands to – proved to be pretty inelastic of pricing in 2018, so it delivered. In 2019, we really transitioned to not only did some list pricing, but transition to getting – to cutting back on some very, very deep discounting on a few categories. When you talk about elasticity, then, that’s much, much greater swings of elasticity, because you’re talking about changing very, very low promoted price points with, in many times, excess merchandising that goes along with them. And forecasting and guessing the volume decline on that is very complicated. You learn over time, and there may be places, as Bruce mentioned, where we lost a little more volume than we thought. We might want to get some of that back. But it’s not like we’re going to do a wholesale change. We knew and said we were going to have less volumes because we were giving up very, very deep discounting, many at low and below margin. So, it’s why we were able to withstand a little bit of sales on the lower end and hit our EBITDA guidance because a lot of them were empty cases.

Okay. And just lastly, you guys called out, last quarter, higher garlic costs due to the tariffs. And now with the coronavirus, we’ve been hearing reports that garlic prices again are going up just because there’s not enough production coming out of China. Just thinking of that as a lead-in to how you’re looking at inputs and your ability to kind of price through for that.

We have some ability. So we’re securing garlic supply. So we are already in we’re already – we have good supply already in inventory from China. But we’re also looking at other regions to make sure we’re protected and never have an interruption of supply. So there is going to be an uptick in our costs. And that’s probably one of the biggest uptick in cost. We haven’t really seen a lot of other volatility, but there is an uptick in garlic cost. And the way that many of our spice contracts are written, we can pass some of that along. It’s more commodity based. And as Bruce said, we had negative pricing last year on spices because we gave back some of the commodity savings we got. So it’s not 100% pass-through either way, but it does go in tandem in the space world.

Thank you. Our next question comes from the line of Bryan Hunt with Wells Fargo. Please proceed with your question.

Thanks for your time this afternoon. I was wondering if you could maybe help bridge out the remainder of the 1% to 4% EBITDA growth for 2020. You gave us a little bit of contribution, a couple of million from Clabber Girl. Again, I was wondering if you can help cover the rest of it.

Yes. So there should be a little bit of Green Giant from incremental sales. And then we referenced a small price increase, which is really the wraparound benefit of last year and some more cost savings efforts. All of that’ll contribute and offset some increased costs.

Very good. Next, I was wondering if you could just touch on Farmwise, maybe what the acquisition costs are, I mean, it is for that business. And maybe what the sales and EBITDA contribution might be for 2020 there as well.

Yes. It’s small less than $5 million in all cases. And this was less an acquisition around a business that’s generating EBITDA that we’re going to leverage this year and more about, as Ken likes to describe it, as a research lab, in this sense, product innovation, demonstrated ability to launch into the natural channel and products that are very complementary with what we’re looking to do with Green Giant.

Yes. this business, as it comes in, we’ll have de minimis impact on our numbers. It really is – it’s the accelerating of Green Giant innovation going forward. And we haven’t yet even developed a plan for what we’re going to do with Farmwise in the natural channel. We are very excited about our access into the natural channel, which will probably be more of a 2021 opportunity. But we don’t have – all of this great veggie innovation, we don’t have any Green Giant in the natural channel. They don’t want mainstream brands. So we see Farmwise as a great ability for B&G to now have access, with our great innovation engine, both the B&G innovation engine as well as the Farmwise engine to take Farmwise and build it in the natural channel.

Very good. I was wondering if you could also touch about – you talked about a lot about innovation. When you look across your portfolio of innovation, how wide is the acceptance of items such as Cauliflower Breadsticks and the Cauliflower corn-blended shells at Ortega?

Well, if you look at food, because ex-AOC, as measured by Nielsen, has got convenience stores and stuff like that in it, which are hard to measure and not really appropriate for a lot of our products. So if you look at food distribution, our food distribution on Green Giant as a brand is very high. It’s in the 80%, 90% range. A lot of our top-selling innovation gets 75% or more distribution on our innovation on Green Giant. On Ortega, I don’t believe we’re that high yet, but we’re presenting every day to customers. So, I don’t have the final number about what ACV distribution is. But it’s clearly going to be somewhere in the 50% to 70% range on the innovation, given they are high priority ones. So, we want to do innovation on the big brands so that we can get more national distribution, and innovation on a regional brand is just not going to amount to all that much.

Do you believe the discrepancy between what you just reported for Green Giant and the Nielsen data, it was just – you guys – you had better growth in placement in non-measured channels. Is that kind of a fair assessment of the situation?

A little bit, but Canada was probably the biggest driver of the difference between this, you don’t see Canadian consumption numbers. But we did have – Green Giant did have a slowdown in sales. But again, a lot of that was due to the pullback we did on trade.

Very good. I will hand it off to somebody else. Sorry, last question. When you look at the proposed improvement and leverage to 5.7 to 5.9 [ph], what does that imply with your discussions with the agencies. Does that get you into a spot, where you’re able to maintain the B to B+?

We would love to maintain our existing ratings and improve them, probably not appropriate for me to comment on conversations with the analysts. But certainly, our ratings are important to us. Our cost of debt is important to us. We’ve been very fortunate with pricing on our debt. As Ken mentioned earlier, we just did a debt refinancing last fall. Our largest ever and that one of our largest coupons ever. And so that’s obviously important to us.

Very good. Have a good evening.

Thank you.

Thank you. Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.

Great. Thank you so much. First, it sounds like you said some of the year-over-year EBITDA uptick you expect in 2020, maybe driven by savings. Is that – I’m assuming that includes, like, the $15 million, $20 million you mentioned in the prepared remarks each of the next three years? Or is there other kind of regular productivity? I’m really just asking to see, if we think about that…

Yes. That is the productivity, that’s exactly what we’re talking about. That’s it.

Okay. So, like if we’re thinking about the $15 million to $20 million each year over the next three years. I’m assuming there’s some plan to reinvest some, if not all of that back, just given, obviously, like the competitive dynamics increase, you’re posting some volume pressure, the trade spend you pulled back in, but you never know, you might have to put more back more of that back end. So like, if we’re all forecasting the next three years, we shouldn’t be taking, call it, $17.5 million per year and dropping that to the bottom line.

You’re absolutely correct.

Okay. Thanks. And then…

Yes. Our model is really to provide some stability to our earnings going forward. We’re not going to be presenting huge increases in base business earnings. It’s really to get back on track to being kind of the steady-Eddy performance that B&G has always been known for and then get back to accretive acquisitions. The problem over the last few years before 2019 was that while we continued on the acquisition hunt we had a little – we had leakage. And so the acquisitions were accretive. Not because the acquisition didn’t perform, but because we had a leaky bucket. So, our goal is to stop the leaky bucket, which we did last year, and Clabber Girl grow a little bit, ex Pirates because there’s been so much noise with Pirates in and out. And so going forward, we’re saying we’re going to have stability in top line and bottom line. We need to do cost productivity to offset inflation and maybe drop some of that to the bottom line, maybe invest some in marketing. But then make sure that our balance sheet can be prepared to do the accretive acquisitions. And that’s a little tricky with our debt the way it is right now, quite frankly, but not impossible. We did it with Clabber. And as we said in our remarks, there’s opportunities we’re looking at that will – that will not put pressure on our leverage, but will help us grow our EBITDA, which is what this company has been doing for over 20 years.

Fair enough. And then just quickly on the dividend. You stated upfront, there are three issues that probably pressured the stock, one of them you caught out with the dividend. So, I’m just curious, you said in the prepared remarks, not trimming the dividend because that’s kind of how the company was built, which I understand to an extent. But then I also have to ask, why not allocate more to capital – more capital to acquisitions? And kind of just trying to understand a little bit better, just the process behind the capital allocation strategy, given your dividend yield is materially higher than the highest next to you within this space. That’s all. Thanks.

Sure. And I think the Board and the management team, Ken and I included, have had a consistent view on this, and we went public on the idea of returning excess cash to shareholders. We view the dividend policy based on our cash generation and the cash generation is here with the company. We do think the yield doesn’t make a lot of sense, but we never set the dividend policy based on yield. It’s been more a function of the cash flows. And our view just the dividend yield doesn’t make sense because the stock price doesn’t make sense.

Okay, great. Thanks, guys.

Thank you.

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

Hi, thanks for taking the call. I had two questions for you. The first, it’s been a little while since we’ve talked about Ortega growth. And you talked about the innovation and then, in response to Bryan’s question, gave a little bit of schematics on kind of where you were in distribution. But is it just sort of the new veggie tacos that you’re looking at on the street sauces, or is it distribution gains? And would it take to get that to kind of a low single-digit growth as a brand?

Well, it’s definitely the launch of, we think, the – probably the biggest news in taco shells since the taco shells. So with those launches and – of that in the taco sauces and good acceptance, we should see some – you guided some low single-digit growth.

And does that take more marketing and noise around to do that or…

Excuse me, I’m sorry.

Would that take more marketing support to do?

Well, we have a marketing that we allocate amongst our brands, depending on what each brand has going on. But yes, we’re going to support it with a lot – we focus – we don’t have the biggest advertising budget. So, we do focus a lot on digital, and we focused a lot on shopper marketing with our retailers, and we also focused a lot on in-store. So, there are several categories. We’ve shared in the past where we have bought out some of the categories like frozen vegetables, where the signage that goes on the freezer doors, we have exclusivity on that signage. So, we have done that in other areas of the store to support both cross-brand merchandising as well as innovation.

Got it. And my second question Bruce, is could you give us a sense of where the – where the working capital, the $35 million working capital savings, where it is coming from? Or I guess what drove the increase last year that you’re pulling back on a little bit this year in?

Yes, sure. And as I’m thinking about working capital, I’m literally thinking accounts receivable, accounts payable, inventory. We did a great job 2018 bringing inventory down. It came up a little bit again in 2019. Some of that is the acquisition of Clabber Girl. And then payables went the wrong way on us. And so both of those will be a big focus in 2020. We think that there’s an opportunity to generate some excess cash by bringing those back down to the right levels.

There is no one category, like the can category that you kind of liquidated out of – to do that. So, it’s just better management across the system.

Better management across the system.

Okay. Thank you guys, so much. I appreciate it.

Thank you.

Thank you. Our next question comes from the line of Ken Zaslow with Bank of Montreal. Please proceed with your question.

Hey, good afternoon, everybody.

Hey, how are you?

Good. A couple of questions. You took away the cash flow question, so I don’t have to ask that. When I think about all the reduction in your lower-margin SKUs, SKU rationalization, how come that’s not going to add to the operating profit line? Is that not accretive to your numbers?

It was and if you look, our EBITDA was up $11 million in the fourth quarter.

Is that going to though continue into 2020 or that action is done?

So, we talked about a very small price benefit in 2020, I think $3 million to $5 million.

But what about the – but you’re not calling any more SKUs. I thought when you talked about guidance, you said if you would it would be 0% to 2%, but partially offset by some SKU rationalization, getting rid of some low-margin SKUs, and then we account for that.

Yes. And that is all factored in and baked into our full year guidance of 302.5 to 312.5.

But I guess what I’m trying to say is, when you’re thinking about the EBITDA bridge to 2020, is that materially incrementally, marginally incremental? It just seems like it would be – but anyway…

Marginally incremental and baked into our numbers.

Okay. My second question is, in terms of managing complexity. So, I don’t remember exactly what was last when you had this much product innovation coming, this much products going into different categories. How do you – what capabilities are you better equipped to be able to have – manage the complexities relative to history?

Well, I’d say that we have been launching a steady array of new products in Green Giant frozen for now started in 2016, right, so 2016, 2017, 2018, 2019. So, we haven’t had any significant material hiccups in our ability to launch a lot of new innovation in frozen. Having said that, since we are putting the accelerator on, one of the initiatives that we are doing that we haven’t shared is that we are dedicating – we’re taking – the old B&G model was to take everything we have and put it in the same salesperson’s bag, and now that bag has over 50 brands in it. So we are dedicating some of our salespeople to only focus on frozen Green Giant. So, across our major customers, we’re going to have people that are dedicated on frozen, because there’s so much activity and now competing in multiple categories within the frozen food space. And then we’ll have a group that’s out the rest of the line. So that’s our commitment to accelerate our capabilities to handle Green Giant.

Okay. And then my last question is as you think about your new product innovation, the investment that goes alongside that, how much incremental investment is required year-over-year for the new product launches investment? And is this going to be a new level of investment on a per-year basis? Does it – is this something that you’re going to – as a base case where you’re going to build onto? Or is this a one-time infusion? Can you talk about how you think about the capital investment for the new product launches, and how you think about this?

No. I mean, we’re not proposing a significant increase in marketing investment. We are spending a little bit more on slotting next year, but that’s baked in our sales assumptions and slotting is a gross-to-net reduction. And in terms of capital, we’re not spending a lot of capital. But with a lot of these quick commercial, R&D and commercialization of these items are with partners and outside manufacturers. So none of what I – what we outlined in innovation for 2020, correct me if I’m wrong, none of the Green Giant’s going to be internally produced. And Cauliflower taco shells and pizzas will be internally produced, but that wasn’t a significant capital investment. So, really more about R&D expertise and consumer insights than anything else.

Yes. I don’t think anything that we’re proposing that we’re planning on doing in 2020 is radically going to be different than what we’ve done in the past. So for Green Giant, new innovation sales contributed something like $200 million in retail sales in the last year, up over $0.5 billion since launch. And then different brand, but just showing what we’ve been able to do with big brands. When we bought Ortega, it was something like $75 million in sales. It’s north of $140 million today. And so we’ve definitely demonstrated with some of our big key brands an ability to innovate around the brand, grow things. Clearly, what we’re doing with Green Giant is revolutionary in the category. But it’s more of the same as far as what we’ve been dealing with Green Giant for the last couple of years.

Great. I really appreciate it.

Thank you.

Thank you. We are out of time for today’s call. I’d like to turn the call back over to Mr. Romanzi for any closing remarks.

Well, we thank you for joining us this afternoon. I hope we addressed the issues that people have with our performance in the past and that you can understand that we’re committed to drive continued sustained performance in the future and that the model for B&G is alive and well and works. So thank you all, and have a good night.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.