Good day. And welcome to B&G Foods First Quarter 2022 Earnings Conference Call. Today’s call which is being recorded is scheduled to last about 1 hour, including remarks by B&G Foods management and a question-and-answer session. I would now like to turn the call over to your host, Sarah Jarolem, Senior Director of Corporate Strategy and Business Development for B&G Foods. Sarah?

Good afternoon and thank you for joining us. With me today are Casey Keller, our Chief Executive Officer; and Bruce Wacha, our Chief Financial Officer. You can access detailed financial information on the quarter in the earnings release we issued today, which is available at the Investor Relations section of bgfoods.com. Before we begin our formal remarks, I need to remind everyone that part of the discussion today includes forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer you to the B&G Foods annual report on Form 10-K and SEC filings for a more detailed discussion of the risks that could impact our company’s future operating results and financial conditions. B&G Foods undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We will also be making references on today’s call to the non-GAAP financial measures, adjusted EBITDA, 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. Casey will begin the call with opening remarks and discuss various factors that affected our results, selected business highlights and his thoughts concerning the outlook for fiscal 2022 and beyond. Bruce will then discuss our financial results for the first quarter 2022 and our guidance for fiscal 2022. I would now like to turn the call over to Casey.

Good afternoon. Thank you, Sarah. And thank you all for joining us today for our first quarter earnings call. The first quarter of 2022 continued to be challenged by inflation and supply recovery. Net sales increased by 5.4% versus the first quarter of 2021, ahead of our expectations. Sales were driven by continued elevated demand compared to pre-COVID levels and higher pricing with relatively low elasticities. However, our first quarter adjusted EBITDA declined 16.2% versus last year, behind higher than expected inflationary cost pressures accelerated by the war in Ukraine, particularly in oil, wheat, corn, fuel and other commodities. We expect that our latest pricing initiatives will recover these higher costs in the back half of 2022. There is a lag between higher cost of goods sold and pricing during the first half of 2022. New pricing actions will take effect in late Q2 and early Q3, with a two-month to three-month notification and implementation period required by our retail partners. Bruce will talk more specifics on the quarter, including financial and portfolio highlights. But let me address the key factors driving 2022 first quarter results in more detail. Inflation, total cost of goods sold inflation in 2022 is projected between 19% to 20%, following the impact of the war in Ukraine and global supply issues. We plan for inflation in the low to mid-teens but now have line of sight to significantly higher costs. In particular, soybean oil, the primary input to Crisco is now over $0.80 per pound relative to our projections in January of less than $0.60. Wheat and corn have reached historical highs because of the Ukraine-Russia disruption and vegetable costs for Green Giant have risen as farmers shifted crop planning. Freight and delivery costs have also increased sharply behind higher oil prices. Second, pricing, P&G…

Thank you, Casey. Good afternoon, everyone. As Casey just discussed, our first quarter was heavily impacted by severe input cost increases across large portions of our portfolio, coupled with continued industry-wide supply chain disruptions that while improving has still been a drag on the business. The negative pressures have been offset in part by a pricing initiatives that include list price increases, trade spend reductions, product weighed out and the impact of product mix. These initiatives that we have taken to improve net pricing have been designed to be equally as large. However, due to the lag effect on implementation, our margins have been compressed in the short-term. We expect similar levels of margin compression in the second quarter due to the input cost increases, but our model assumes that our pricing initiatives will begin to catch up to the cost increases and lead to relief beginning late in the second quarter and in the second half of the year. Our supply chain issues continue to improve and we expect strong net sales performance to continue throughout the year. During the first quarter of 2022, we generated net sales of $532.4 million, adjusted EBITDA of $77.9 million and adjusted diluted earnings per share of $0.34. Net sales for the first quarter 2022 increased by $27.3 million or 5.4% ahead of our annual targets, despite the supply chain challenges. Price coupled with mix, accounted for $36.2 million of the net sales increase. FX had a negligible impact and volumes accounted for a decrease of $9 million. We believe that supply chain challenges and low fill rates contributed to the majority of the volume declines. We continue to monitor our brands to measure the negative impact of elasticity resulting from our pricing initiatives, but so far, these impacts have been relatively modest…

Thank you, Bruce. As discussed, the first quarter showed progress in delivering sales and pricing growth, but could not offset the gross margin impact of escalating input and operating costs. Additional pricing actions have been fielded and implemented to recover higher costs, and will flow through in linked Q2, in the back half of 2022. We will continue to closely monitor inflation and respond quickly with any further pricing and continued productivity efforts. This concludes our remarks and now we would like to begin the Q&A portion of our call. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of William Reuter from Bank of America. Your line is now open.

Good afternoon. Once all of the additional price increases have been pushed through and assuming that we don’t have accelerating inflation from here. Would we expect that next year, you could be kind of back in that 18% to 20% EBITDA margins range that you talked about in the past or will still take some time to get there?

I think that would be the goal. The big wildcard is what continues to happen with inflation and do we have any more shocks to the system like we had over the first quarter of this year. But certainly that is the goal to return to those margin per parts.

Okay.

I mean and our price is largely going to recover gross margin dollars. So you will have a little natural compression of margins, because of the higher price realization. But our goal is to get back to that, as Bruce said to that 18% to 20%, but I think, in a while and cost stay high, we will probably have a slight margin compression over our long-term goals.

Yeah. No. That that makes sense on the inflation and the margin rate coming down a bit. But -- and then I guess my second question with regard to the change in the organizational structures that’s going to put in place over the next three months to four months. Is this -- I mean, you mentioned that it’s going to improve speed and agility. Is there any either incremental costs of having more labor or is this actually going to result in some cost savings in terms of your headcount?

I think it’s largely a reorganization in which we expect to be relatively neutral in terms of the total SG&A or G&A costs associated with the business. It’s largely reorganizing ourselves to kind of create multifunctional units which are driving aspects of our business and have people make decisions that are closer to the business in more real-time. But our goal is to maintain this at relative cost neutrality. So we will have some puts and takes and some movements and other things that are maybe you know some slight restructuring costs, but you know so far we have designed this to be relatively cost neutral.

Perfect. That’s all for me. Thank you.

Our next question comes from Michael Lavery from Piper Sandler. Your line is now open.

Good afternoon. Thank you.

Hey, Michael.

I just want to follow-up on that margin question. Just trying to understand, I did this quickly, I hope the math is right. But just based on what you have in the bag for the first quarter and what your guidance would point to, it looks like you are guiding 17% to 18% EBITDA margins for the rest of the year and I guess if that’s right, what are the - what really gets you there and what kind of trajectory does it look like. I think you said it’s more second half skewed, which of course, would just push those numbers even higher if the second quarter is more similar to the first.

Yeah. Not talking to margins for a specific quarter, but directionally there is expansion. If you think about a lot of the pricing that we are expecting to get this year, it will be in the second half of the year. And most of that is already underway, it just hasn’t fully ramped into the business yet, right? And so, there’s a process of communicating those price increases to the customers. We need to do that, we need to wait till after the costs have materialized and then there’s a process to go through and so very large cost increase this year that we face and very large pricing and that’s the biggest driver.

Yeah. We will expect to see better margins in the back half quarters, of course, the back two quarters.

Well, I guess, can you just contextualize it a little bit more on the prior question, you were really referencing kind of an 18 or higher for next year and waving a little bit of caution around that, but I think your guidance is pointing to that in the second half of this year, is that achievable?

Again, the whole point is premised on input cost increases that we have already seen in price increases. And so if we have another shock to the system this year in the back half from an input cost, we will have to have additional price increases to take it. If not, the pricing increases should catch up to the cost increases by the back half of the year.

Okay.

I think the -- yeah, but just to be clear, what we are saying is our long term goal is get to 18% to 20%. I think the issue will be that even next year, we will be challenged to get over 18, because of this natural margin compression with higher realizations in higher costs, right?

Got you. And can you just give us some of the thinking on why the gain on the sale would have been included in adjusted EBITDA that feels more much more like a one-time item.

I don’t know, I mean, look, it’s an accounting calculation. It’s a gain on sale. It was offset in part by some costs that we incurred in terms of factory shutdown, so some of those netted against each other in part.

Okay. Thanks a lot.

Yeah.

Our next question comes from Carla Casella from JPMorgan. You may now state your question.

Great. Thank you for taking my call. On the M&A front, so you -- did you say how much you paid for Growers Express?

We didn’t. It was a private transaction. It’s on the smaller side and terms were not disclosed.

Okay. And so they owned the, I am sorry, the Green Giant license, was that recently that you sold that to them?

Before our time actually, they have owned it for years. That’s a small piece of the business.

Right.

Yeah. And then the other part is they are the manufacturing for two of our kind of long time initiative, innovation products, the spiral veggies and the rice veggies.

Okay. Great.

And that’s really what the transaction was all about.

Are there other opportunities like that to buy, bring someone in-house that you have already been working with or are you talking -- when you mentioned them M&A, are you talking about like what we have seen in the past brand acquisitions on a larger scale?

To the -- yeah, I mean, there’s not a ton of opportunities like this. We are always looking. But in general, we are looking for opportunities similar to what we have done in the past. Obviously, we will point to the ones that have been more successful than not and that’s the role models that do more like what we own, what we have today that’s going to do well and build a more focused portfolio. So expectation is to be more disciplined, I mean, in the past.

Hi. Most of our acquisitions will probably be buying entire businesses. This one just happens to be a great opportunity to integrate our supply chain. There will be -- there may be some others like this, but really, I don’t see anything on the near-term horizon.

Okay. Great. And then, I was just -- are you -- is M&A -- I mean, you continue to look, even though your leverage is relatively high. Are you -- I would assume you are somewhat limited in financing it, given how high the leverage is to this point or is it just a steady process of looking at M&A regardless?

All right. I think it’s a steady process of looking certainly from a capital structure standpoint. It’s got to fit within the context of where our leverage is and we have got debt and equity with which to fund stuff and so open for M&A, but you are raising a valid point. We have got to be smart about how we finance things.

Okay. Great. And then just on the cost increases, you mentioned oil, wheat, corn, fuel, any of those that you can hedge and if so, how far out, can you hedge your or there anything that just can’t be hedged?

Hi. Honestly, we can increase coverage on some of these commodities. But to be honest, increasing coverage right now at historical highs doesn’t feel like the right thing to do. So we just don’t know where they are going to go and so we are trying to protect our near-term supply, but we don’t go out and hedge long-term when the market is at historical highs.

Okay. Great. Thanks. I will get back in queue.

Thank you.

Our next question comes from Karru Martinson from Jefferies. Your line is now open.

Good afternoon. In terms of the reorganization, I thought I heard you say that there would be a portion of the business that would be positioned for potential divestitures. I just wanted to get a sense of, what’s the magnitude of businesses that you think may no longer fit with you if they do not come up to your full standards?

I think within the business unit structure, we would have a business unit that was managing a collection of assets that we would I think manage for cash flows and stability. And over time, we might decide that some of those businesses don’t belong in our portfolio. I think in the near-term those are relatively small businesses, it’s not huge. But we will always be looking at our portfolio and deciding which businesses that we think fit, where are we going to drive value and add value in the future, and where do we have platforms for future acquisition and roll up.

And when you guys talk about still being below fill rates your own customers, I mean, I am getting we are -- we have been getting kind of mixed signals from grocers and others. Some are saying that they are still seeing strong demand. Others are saying, we are starting to lap tougher comps. Consumers are pulling back a bit. But certainly below fill rates would suggest that the demand is still out there. I mean, what are you guys seeing or hearing from your customers?

I mean, we are hearing that demand still remains elevated compared to pre-COVID levels. So, in some of the traditional categories and preparing meals and other things. So we are still hearing that demand is high, but it is off the COVID highs. So we continue to see strength behind kind of at home meal consumption, particularly as people continue to work some parts of their week remotely, which is driving a few more meal occasions like breakfast and lunch and then coming out pretty clearly in the research. So we still are seeing some elevated demand is going to vary by category in terms of people’s behavior. I do expect that you will see people ship a little bit more eating out at home on the margin. But again, I think, relative to kind of pre-COVID levels, we are still seeing at home consumption and higher demand.

Thank you very much, guys. Appreciate it.

Thanks Karru.

And our next question comes from Robert Moskow from Credit Suisse. Your line is now open.

Hi. Thanks for the question. Hey, I guess, Casey and Bruce, I am just looking at the cash flow and first quarter looks a lot like first quarter a year ago and last year was characterized by working capital being a big use of cash like $100 million, as if you were chasing an upward inflation curve. It looks like that’s playing out again this year. So if this is the scenario where, you have another use of cash of that size and - and depressed free cash flow, what will happen at the end of the year. Does that put too much pressure on your balance sheet, would you have to do another equity deal or what do you think?

Yeah. The goal would be to not have quite as much as last year. I still think that there is going to be some. The real pressure that we saw last year was with two things. It was the cost inflation, which was a big product of the second half of the year and the other part was the re-piping for Green Giant. So we had virtually ran out of product during the COVID enhanced period and last year was a big investment from a Green Giant and some others. So you are right, there will be some pressure. Don’t expect it to be as much as it was last year.

Okay. And is the balance sheet strong enough to handle that or?

Yeah. We would make sure to manage the balance sheet to handle it.

Okay. All right. Thank you.

Thank you. Yep.

And we will now take our next question comes from Eric Larson from Seaport Research Partners. Your line is now open.

Great. Thank you for the question. Two of them from me. So first is, maybe you have talked a little bit about this, but in your prepared comments, you said that you would, obviously, sales are going to be more elevated than you had expected because of pricing. But then you also threw in there that you are looking for more elasticity. Are you seeing elasticity yet or is that just from an overabundance of caution?

I think a little bit the latter. So far, when pricing has been implemented in the market that we can track and do some elasticity measurements, we have seen relatively low elasticity. I would not say no elasticity. We have seen some elasticity, but it’s relatively low to what our models would have historically predicted. In our future projections were predict -- we are predicting that that goes up modestly that a little bit of caution to assume not assume that, we are going to stay at this low level, but maybe go up a little bit more, but still below where we would expect elasticity at a historical up rate because everybody, the entire category is kind of is going up. So we -- I guess we are -- just to be cautious, we assumed a little bit higher elasticity in our to go projections. That’s the easy answer.

Okay. So the other question is, you had mentioned also that you were -- you are -- I think you are expecting some more vegetable inflation on the input side and stated that, you think the farmers are going to be shifting from no kind of vegetable acreage into maybe some more traditional role crops like corn, soybeans, wheat, whatever. But we haven’t started that throughout life, never really started that planting season much yet. I mean our farmers telling you that are your suppliers saying that there isn’t going to be as much acreage this year? So I guess I am just curious as to…

Yes. We -- those conversations, we kind of lock in planting and contracts, with our vegetable suppliers. We lock those in, kind of in the last month based on what plantings, they are contracting and what we are seeing is that it’s, more expensive to get the vegetable planting contracted, I think, because a lot of farmers are shifting towards the record high prices in soybeans and corn.

So are you getting the acreage, I understand it’s probably going to cost more…

Yeah. We are going to get the acreage.

Okay. Okay.

We are going to get the acreage. That’s what we are hearing. But it’s going to cost us a little bit more, because now we are competing against other land use.

Got it. Okay. Yeah. I didn’t -- I was…

That’s actually one of the things that has changed in the last month for us in terms of our inflation assumptions. We have got clarity from our farmers around what we expect to be are the cost of the new crop coming out kind of starting in July, August.

Perfect. I was assuming -- I was actually thinking that maybe you were -- maybe even anticipating some shortage of supply. But I guess, I understand what you are saying at this point. So thank you.

So far we are being told that our needs can be met.

Got it. Okay. Thanks.

And obviously a lot of that depends on what kind of a crop really comes out and so -- but so far from a planning standpoint, it looks like we can meet our needs.

And we now have a follow-up question comes from Carla Casella of JPMorgan.

I am just wondering if you give any color on labor in terms of -- do you have any issues with labor or labor costs also going up through the year or are you laughing easier comparison the labor front?

So labor I think there’s two components of this. One is, we have raised wages in our -- in many of our plans to maintain our workforce and some of our labor, in some of our factory markets we have extremely low unemployment. So it’s been difficult to maintain full staffing. So this has been improving I think quite a bit over the last couple of months. We have raised wages. We have put in new programs to recruit labor. So I feel like our labor situation is getting better in most of our factories are maybe still one or two that we are still trying to get back up to full staffing. But I think what you are hearing us say about inflation and cost pressures is that we do expect our direct labor costs in the factories will be up this year, over last year to maintain full staffing and to maintain full production.

Great. Thank you.

Okay. Our next question comes from Ken Zaslow from Bank of Montreal. Your line is now open.

Hey. Good evening, guys.

Ken, how are you?

Can I just ask one question about, what are you seeing on elasticities and are you seeing any value brands or private label? And how do you kind of factor that in not just this year, but into 2023?

I mean, I think we are still seeing relatively low elasticities. In some of our most price sensitive products, we might see them to be a little bit higher, but still well below kind of historical model predictions. I think we are -- one of the reasons why we are saying we have kind of raised our expectations on elasticity a little bit, but not where it would have been historically is that we do expect as prices get higher and higher, particularly on some of our products that have really big cost increases that we will see a little bit of migration to private label. So far, we have not really seen that very broadly, but we kind of expect as prices go higher that some of that could happen.

Have you seen any of your competitors not follow or have you not follow some of your competitors? And I am not sure which comes first, but I am just trying to make sure that the disparity between you and your competitors are still the same or has there been any change in that across any parts of your portfolio and then I will leave it there and I appreciate it.

It’s largely the same. Sometimes you see, private label or different competitors moving at different rates, but largely, people have responded to the higher input costs.

Great. I appreciate it. Thank you very much.

Thank, Ken

There are no further questions at this time. Presenters you may continue.

Great. Thank you, everybody.

Thank you.

And this concludes today’s conference call. Thank you everyone for participating. You may now disconnect.