Good day, and welcome to the B&G Foods First Quarter 2020 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 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, 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 the opening remarks and discussion of various factors that affected the company’s results, selected business highlights and his thoughts concerning the outlook for the remainder of fiscal 2020. Bruce Wacha, the company’s Chief Financial Officer, will then discuss the company’s financial results for the first quarter as well as expectations for 2020. I would now like to turn our conference over to Ken.

Thank you. Good afternoon. Thank you all for joining us today for our first quarter earnings call. I think this find you and your loved ones safe, healthy and weathering these most difficult times. We find ourselves in unprecedented and extremely volatile and uncertain times driven by the COVID-19 pandemic. But through it all, we at B&G Foods have maintained a steadfast commitment to our core values and strategic imperatives to ensure the long-term success of our company and to make B&G Foods a more valuable company. During this crisis, every single decision we make is guided by our following priorities. First and foremost, protecting the health and safety of our employees, assuring our usual high level of quality and integrity of our products, meeting unprecedented customer and consumer demand, helping our communities, and lastly, making the right decisions and investments to ensure the long-term financial health and success of B&G Foods when we emerge from this pandemic. On today’s call, I will cover three topics. First, I’ll discuss the actions we’re taking during this unprecedented time to service all of our stakeholders; second, I will provide a year-to-date update on our business; and later after Bruce’s comments, I will provide perspective on our outlook for the remainder of the year. Consistent with our core values, the health and safety of our employees and the quality and safety of our products are our highest priorities. At B&G Foods, we have implemented a wide range of precautionary measures at our manufacturing facilities and all other work locations in response to the COVID-19 pandemic. Precautionary measures that B&G Foods has taken to protect our employees, customers, suppliers and other business partners and to maintain our abilities to supply some products include the following among many others. First, the establishment of a COVID-19…

Thank you, Ken. Good afternoon, everyone. I hope that you and your families are staying safe and healthy. Before I begin, I would also like to add my own thanks to our incredible team of dedicated employees across all of B&G Foods for their hard work during this time. As Ken mentioned earlier in the call, while the onset of the coronavirus has been traumatic in its human and economic costs, the measures that we have taken as a society to combat it, particularly with regards to social distancing and staying at home, has led to a significant increase in Americans preparing and eating their meals at home. And this is something that we expect to continue at some level for an extended period of time. We constructed our portfolio of brands over time to include a broad range of shelf-stable products and frozen vegetables. These are exactly the types of brands and products that consumers are gravitating to in the current environment, and we are happy to be doing our part to help feed America. Not surprisingly, given this backdrop and our portfolio of brands, we had a very strong finish to the first quarter of 2020, with outsized growth in March in terms of net sales and adjusted EBITDA. This was driven by the final two weeks of the month, which had frenzy demand for our products and coincided with the establishment of the country’s social distant policies, stay-at-home mandates and the shutdown of large portions of the economy. We have seen this heightened demand for our products continue throughout April and into the beginning of May. In the first quarter of 2020, we reported net sales of $449.4 million, adjusted EBITDA of $80.7 million and adjusted diluted earnings per share of $0.46, results that are far greater…

Thank you, Bruce. While the coronavirus pandemic is still evolving, we believe that the foundation we have built at B&G Foods has positioned us to come out of the crisis stronger than we entered it. As Bruce mentioned, we believe we will have elevated financial performance throughout the crisis and beyond as consumers gravitate toward our products while cooking and eating more at home. We also plan to take this opportunity to make incremental investments behind brand innovation and e-commerce preparedness. We are optimistic because we believe that the increase in consumers eating at home is resulting in trial among a new set of consumers we were not reaching previously. Our consumer research has uncovered encouraging news regarding bringing new consumers into our franchise. We believe new households are like a fountain of youth to food brands, and our research shows that the percent increase in total brand buyers due to new buyers since the COVID-19 outbreak ranged from 15% to 45% amongst B&G food brands. As a result, we’re seeing a significant increase in volume from new buyers, increasing by an estimate of between 14% to 53% across our brands. Encouragingly, new brand buyers during this time indicate they have a strong appetite to continue buying our brands as the repurchase intent or the percent of new buyers who plan to buy again, range from 40% to 82% among our brands. So going forward, our job is very clear. We must work hard to retain as many of these new households as possible. So we’re optimistic about our outlook for 2020, powered by changes in consumer behavior, our stable of time-tested and trusted brands, ideal for preparing meals at home and the strength, flexibility and commitment of our employees to excel even during these most difficult times. We look forward to updating you on our progress over the course of the year. In the meantime, I pray that all of you and your families and friends remain safe and healthy. This concludes our remarks today. And now we’d like to begin the Q&A portion of our call. Operator?

[Operator Instructions] Our first question comes from Andrew Lazar of Barclays. Please go ahead.

Good afternoon, Ken and Bruce. Glad to hear you’re doing well. Got two questions, if I could. The first one is more of a quick one. I know that you had mentioned that overall consumption in 1Q, I think, was up 12% or so. And that was a little ahead of overall sales growth and obviously well ahead of the organic increase of a little over 4%. I was hoping you could just kind of bridge those two for us a little bit. I don’t know if there was any inventory drawdown. I guess in any couple of week period, you can have differentials, obviously, between consumption and shipments due to retail or inventory levels. And then I’ve just got a follow-up.

Well, we see any inventory…

I think part of the – sorry, go ahead, Ken.

No. Go ahead.

Yes. Part of it also, Andrew, is we saw massive sales in April. And so there may be a little bit of a timing, as you referenced. So we had, as Ken mentioned on the call, our busiest week ever to close out March, and then just continued strong demand through April. So maybe just is a matter of shipments catching up.

Also shipments would have lagged a little bit on consumption because although not a big part of our business, our foodservice business, as we mentioned, was very soft and started out the year very strong, and then in March really was soft and continues to be soft. So that would be a driver of the shipment number of our total business, net sales numbers growth being less than our consumption growth.

Got it. And it’s interesting from what we’re hearing, I assume the same is true for you guys is that obviously, retailer inventories are also incredibly low by any historical measure, just given, obviously, they’re shelving everything they basically have. So anyway, it will be interesting as time goes on. If people are worried about some big sort of pantry unwind or something, even though there’s clearly consumption happening with people at home, one would think retailers are going to have to restock inventory at some point as well. And I don’t know, maybe even have to reappraise what an ongoing level of inventory might look like going forward. But I assume that’s your levels of retail inventory at this stage are also very low.

Well, you’re right. We don’t expect there’s going to be a pantry de-loading to a great degree because of how frequently we’re seeing consumers come back and research that shows that most people are very, very high percentage of people based on research, we’ve heard are coming back within two weeks. So not staying out of the grocery store for long periods of time. And just our continued strong consumption in order rates through April and May. We don’t think people are – the data doesn’t suggest that all they’re doing is stocking their pantry. There was probably a little bit of that in that spike in March, in mid-March, but since then, it’s been pretty consistent.

Yes. I mean more interesting, I think, is – and I appreciate your commentary towards the end of your prepared remarks around sort of trial and repeat. Because I think that’s really going to be interesting to track for a lot of the packaged food brands that are getting all this trial as many of yours are and how successful you and others can be in converting even some portion of those new trialers, if you will, into more permanent consumers. Can you – and you went through a couple of numbers pretty quickly, but I was hoping you could just cover that a little bit more. Just where – I guess where does that data sort of come from? I assume it’s just sort of panel survey type data of consumers. And how do you parse out how much of that is consumers that are still in a current mindset, if you will, of sort of all things pandemic versus maybe when we’re in a more normalized sort of environment, what the repeat could look like? So any comments there would be really helpful.

Well, some of the data came from third-party resources, but some of it also came from our own consumer research that we didn’t do new this time. It’s something that we do ongoing. So it was – the interesting and very encouraging news was that during the Easter period, for instance, we usually see a jump in households given the brands that tend to drive higher seasonality during that time frame. But we saw even bigger increases this year than we’ve ever seen in the past. So it’s encouraging. In fact, any time you can get new household, that’s a very hard thing to do. Any time you can get new households, just retaining some of them should have a positive impact. So while – well, we certainly won’t project out the sales growth rates that we’re seeing now, we want to closely monitor this so that we can get – when things return to "normal," we’re going to have to include this in our brand forecasting going forward. It’s just like a new product. You take a new product and you measure trial and you measure repeat and you project out what the volume can be. So a new household on an old brand, that’s like a new product. So we really have to kind of apply those consumer marketing disciplines to determine the long-term effect on the brands.

Thank you.

Our next question comes from David Palmer of Evercore ISI. Please go ahead.

Thanks and good evening. Your comments about April growth of 60% and similar growth based on the orders for May, that’s obviously pretty remarkable stuff. It looks like you’ve swung from under shipping consumption by 8 points or so based on your numbers to out shipping consumption just based upon some of the consumption numbers that we saw for April might be a 20, 30 points light of the type of growth that you’re seeing in terms of your shipments, although if we were to spread that over the quarter, that might be more like 10 points, whatever. But as you said, May continues to be very strong on the demand for shipments. So do you see shipments outpacing consumption at this point? And how do you think – why do you think that is? And where do you see this quarter playing out in terms of how you’re going to end with retailer inventory? And I have a follow-up.

Yes. I think you have to be careful. The numbers don’t always match exactly because not all of the business is measured by the consumption numbers. You have to look at them over time. So you can’t pinpoint exact numbers. Keep in mind, if you listen to my – carefully to the numbers, we shipped over 60% growth in April, and our order fill rate dropped below 90%. We could have shipped a lot more, if we had our historical 98.5%, 98.4% order fill. So the demand is really there. And you can’t look at one month and have the same exact numbers between shipping and consumption. There are shipments that go to unmeasured channels and – or unmeasured customers. And of course, the foodservice element I talked before has the opposite effect on that. So, so far, with the – that’s why we’re so – I mean, we’re – we don’t believe this will last forever, but we are so attentive to what’s happening with our order patterns and our open orders and how we can see them now into the third week of May as of today, and they remain strong. So our own inventories have been dramatically depleted. So we’re – as Bruce said we’re producing everything we can sell. And when things slow down, we’ll actually have a chance to rebuild some of our inventory to rebuild our customer fill rates to the traditional high 90s like we normally want to do. But right now, we’re producing everything we can to meet this spike in demand if that continues.

Thanks for that. And then just two quick ones in terms of how we should think about our modeling going forward. You talked about the $70 million of revenue growth in the month of April. If we were just to say round numbers, just – even though it’s not going to be this number, but you had $100 million of new sales or of incremental sales in this quarter, should we think of that being EBITDA of $19 million to $20 million or something like that, which would be similar to your EBITDA margin in the past? Bruce, you made a comment about incremental cost being offset by the leverage, still hard to believe that at that type of sales, you wouldn’t get – even with a co-packer model in a large part of your business, you wouldn’t get some leverage that would outpace your cost. So any comment on that? And then thinking about free cash flow conversion of EBITDA for this year, how would we think about that for 2020? Anything unusual that you would think would impact that? And I’ll pass it on. Thanks.

I’ll let Bruce answer in more detail, but to be clear, we do about half of our business through co-packers. We do not see volume leverage with our co-packers. So our rates – to a great extent. So about half of our business that is doing well in our own manufacturing, we do expect to see – to get leverage off of that volume and the incremental margin off of that volume. But there – as Bruce mentioned, there are higher costs. So it’s a really unprecedented time right now to pinpoint that, but we will have materially increase in sales, and we will have margin that will cover a lot of those increased costs.

And so to Ken’s point, I think if we were in that 18%, 18.5% margin area, we would be happy because it means things are going well. And from a cash standpoint, the cash should follow the sales. We’re always pretty efficient from a cash flow standpoint. As I said on the call earlier, we finished the first quarter with a little bit more than $125 million in cash. We were sitting on a little – somewhere around $200 million today in cash, and that’s after paying our dividend payment.

Okay. Thank you.

[Operator Instructions] Our next question comes from William Reuter of Bank of America. Please go ahead.

Hi. This is Mary on for Bill. Thank for taking my question. First, just on private label environment. Have you seen any shift towards or away from private label? And do you expect that their share may increase as consumers become more focused on value?

I think we’ve been in that mid to high teens private label as a percent of U.S. grocery for some time, and there’s increased demand for private label, and there’s increased demand for branded food and people are eating at home. And I think we should expect that to continue.

Got it. And then lastly, how are you thinking about timing as far as repaying your revolver balance?

I think we’re watching how the world evolves. We drew down a little bit on the revolver as a precautionary matter as the whole coronavirus started to sweep through, and we’re going to continue to monitor things just to be on the safe side. Our revolver is fairly cheap, we’re L plus 175 from a cost standpoint.

Thank you very much.

Our next question comes from Bryan Hunt of Wells Fargo Securities. Please go ahead.

Thanks for your time and thank you discretionary detail. My first question is you have generated a significant amount of excess cash. If I think about discretionary cash, in the month of April, it’s over $100 million. Is there any way you could put some bands around the incremental spending you plan on doing to develop your e-comm as well as the heightened marketing you planned on you plan on putting some incremental cash to work in kind of given the windfall you’re seeing today?

I think from a timing standpoint, we’re going to let the year build and continue to generate that cash. I don’t think it’s going to be material where it’s going to hurt margins necessarily, but we do see an opportunity as we work through the year to continue to invest in our brands, continue to develop our e-commerce capabilities. And we think it’s a good opportunity to do so while we’re benefiting from this increased demand.

Okay. And my second question is, do you see any opportunities to put money to work on CapEx to improve your throughput in the very short-term and/or take advantage of high-return opportunities that you may have, given that, again, you have a cash windfall? And can you remind us what your CapEx guidance is for the year? Thanks for the time.

Yes. CapEx was $45 million was our guidance. That’s probably still a fair number. And that probably has some of those investment opportunities in there. If you think about the last couple years, we were implementing our ERP system. And so that’s largely done. And so we are already planning on putting some money to work from a growth standpoint anyway. We feel pretty good about that number.

Yes. Our plan also included investments to drive efficiency and throughputs in our facilities. But specific answer to your question, there are no short-term things that we can turn on a dime to do. Normally, those things are pretty long lead time projects. So we’re staying with our capital plan as indicated with some minor variations to where we can, but nothing major.

All right. Ken and Bruce, just stay healthy. And thanks for your time. Best of luck.

Our next question comes from Karru Martinson of Jefferies. Please go ahead.

Good afternoon. Just on the foodservice part, the 13% of sales, where are you on that today? I mean has that grounded down to zero? And – or are we still seeing some throughput on that?

Not zero. We still are seeing foodservice sales, but certainly, you saw it with our spice business, it was down. And I think that will come back as people start to go back to work, go back to restaurants and get out of the stay at home. And so for us, it’s a small part of the business. So we’re getting the large benefit from a retail branded grocery standpoint. And a little bit of a drag from a foodservice standpoint.

Okay. And just wondering, in terms of the investments that you’re making, today it’s Cinco de Mayo. Ortega would have had a great opportunity to sell-through. Where are you reallocating marketing dollars here in the front end that may not be invested given that the demand is so strong?

Well, we certainly took part in the Cinco de Mayo promotions with – in all – many retailers with Ortega. Ortega participated in that like it normally does. We did hold back some dollars when it was – where we could because there was driving demand even higher, when we were seeing order fill rates decline was not something. So we’ll take those dollars and reapply them mostly in the second half of the year as well as some incremental investments. Mostly, just getting ready on e-commerce and accelerating that time frame, we were already planning for this year as well as supporting the innovation since we’re launching it later. We’ll be putting a little bit more of the awareness and trial efforts against the Green Giant, Ortega innovation in particular.

Thank you very much, guys. I appreciate it.

Our next question comes from Carla Casella of JPMorgan. Please go ahead.

Hi. Just a couple little follow-ups on the prior questions. Can you tell us how much of your foodservice customers are – have their locations closed versus they’re just operating on a limited basis?

Most of our foodservice customers are the large institutional guys.

Okay. And then it sounds like the cost increases from the bonuses you pay and the extra spacing, et cetera, it sounds like you do expect the sales windfall to more than offset those increased costs. Is that the right way to read it?

From an incremental EBITDA dollar standpoint, yes. From a margin standpoint, not necessarily, maybe a little.

Right. Okay. And then are there any of your – the non-foodservice customers or the foodservice customers where you have a concern or bad debt expense concerns? Receivable balances.

Nothing material. I mean obviously, at the end of March, we were watching things pretty carefully in early April, but people seem to have been able to maintain their businesses.

Okay, great. The rest of my questions were answered. So thank you so much for the time.

Our next question comes from Rob Dickerson of Jefferies. Please go ahead.

Good afternoon. It’s Matthew Fishbein on for Rob. Thanks for the question. Just a quick one to follow-up. Sorry if I missed it, but did you give a dollar amount of the incremental costs related to the COVID-19 situation in the quarter? And how much of these would you consider non-recurring? Some of these costs like the incentives, they sound like they’re one-time in nature, but which of these new costs are maybe a little bit stickier as we think about employee screenings and protective equipment. How should we think about those costs in Q2, assuming they would be higher than they were in Q1 and maybe beyond in the rest of the year? Thanks.

Yes. Less than $1 million in Q1, and the cost will probably continue so long as we’re in the current environment that we are in. And as that environment begins to recede, I think those costs will start to normalize.

Okay, that’s helpful. Thank you.

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

I just had two quick one’s for you guys. I was wondering with the excess cash that you’re generating, sort of given any thought of restarting or becoming more aggressive with share repurchases?

I think we’re looking at the entire capital structure. And so we do have a share repurchase program in place. We ended up not buying any shares last quarter, but we’re also looking at our debt levels as well. We’d like to come out of this with better profile than we went into it.

Got it. Thank you, Bruce. My second one is, you guys said that I think in the script one of the brands you had was up with 45% trial and repeat. I think it was the range of 15% to 45%. And I was wondering what brand was at the high end of the 45% range?

Let me – I’ll have to look at that.

May if it’s new consumers in their category, new households, use in the brands, increasing brand buyers due to new buyers, between 15% and 45% among brands that you are seeing new consumers come into. I can come back to you guys on that.

I’m just trying to open up the – Green Giant was the large one. You’re saying the percentage of new buyers?

Yes. New buyers in the category.

Yes. New buyers.

You’re going to see brands like Green Giant, even McCann’s.

Yes. Green Giant, Victoria was very high at 40%, Polaner All Fruit was 40%.

Okay. I appreciate it. Thank you guys.

Our next question comes from Ken Zaslow of BMO. Please go ahead.

Good afternoon, everyone. Just two for me. One is you said that your new product innovation is still going on as scheduled. Is that – how are you getting the placements of that? Is that – that seems a little unusual given more and more companies are saying, they’re just kind of thinking with their core products. Can you discuss that? And my next – my second question would be, I know it’s early, but the optimism that you have seems almost a point to the idea that you potentially may actually eventually change your long-term growth algorithm. Is that on the table? It just seems the emphatic nature of what you’re doing. Those are my two questions, and I’ll leave it there.

Well, I’ll start with the second one first. It is way too early to try to think about a long-term growth algorithm, while we’re still on the middle, as you can see. We’re still – it’s not over for us. I mean in – our growth rate in April and May is going to be higher than our growth rate in March. So we’re trying to figure out just the short-term and making sure that we’re filling our customer demand in a high-quality way and keeping our employees safe. I think it’s going to take a while for us to figure out whether or not there’s any long-term algorithm change. We hope that we can emerge stronger than we came in, and that will be something that we’ll have to look at going forward. We – in terms of innovation, we didn’t say it was business as usual. We are planning to launch the new products that we had planned to launch in 2020 yet just many of them, just about all of them are delayed because of the retailers changing their timing and when they’re going to reset. So we’re working with our retail partners based on when they want to reset, and many of them are delaying, not canceling resets for 2020.

Great. Thank you very much.

This concludes the question-and-answer session and today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.