Good day and welcome to the B&G Foods Third Quarter 2023 Earnings Call. Today's call, which is being recorded, is scheduled to last about 1 hour included remarks by B&G Foods management and the question-and-answer session. I'd now like to turn the call over to AJ Schwabe, Associate and Corporate Strategy Investor development for B&G Foods. AJ.

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 B&G Foods' most recent annual report on Form 10-K and subsequent SEC filings for a more detailed discussion of the risks that could impact our company's future operating results and financial condition. 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 the remainder of fiscal 2023. Bruce will then discuss our financial results for the third quarter of 2023 and our guidance for fiscal 2023. I would now like to turn the call over to Casey.

Good afternoon. Thank you, AJ, and thank you all for joining us today for our third quarter 2023 earnings call. B&G third quarter results continued strong margin recovery with adjusted EBITDA as a percentage of net sales increasing 80 basis points versus last year to 16%. Gross profit as a percentage of net sales, excluding items affecting comparability, increased 230 basis points versus last year to 22.7%, demonstrating continuing recovery of higher inflationary costs through pricing and productivity efforts. During the third quarter, we lapped most of the pricing actions taken in 2022. Turning to sales performance, base business net sales, which excludes the divested back to nature business, were down 3% versus last year, but slightly up or roughly flat without the Crisco brand, where we proactively reduced pricing to reflect lower soybean oil commodity costs while maintaining gross profit. Overall, many of our brands delivered solid performance despite the uncertain environment of higher pricing and pandemic normalization. The exception was the Green Giant business across frozen and canned vegetables, which was down significantly versus last year. Excluding Green Giant and Crisco, the remaining businesses increased net sales plus 4.7% versus third quarter of last year. Some more detail on the business performance across brands and categories. Spices and seasonings; the high margin spices and seasonings portfolio increased net sales plus 6.1% versus last year. Trends were particularly strong on the food service and members mark, Sam's labelled business, which largely serve out-of-home and small business customers. The core retail branded trends, Dash, Weber, Spice Islands, etcetera, were mixed, impacted by temporary service and production issues in our Ankeny, Spices and Seasonings factory, which have now been resolved. We also launched new seasoning and grilling blends under the Buffalo Trace, Fireball, and Southern Comfort brands and select customers, which…

Thank you, Casey. Good afternoon, everyone. Thank you for joining us on our third quarter 2023 earnings call. As you can see, we had another strong quarter; actually our fourth consecutive quarter of increased year-over-year adjusted EBITDA and adjusted EBITDA as a percentage of net sales when compared to the prior year quarter. As we told you when we began the year, we expected to see large year-over-year increase in adjusted EBITDA and adjusted EBITDA as a percentage of net sales in the first two quarters of this year, followed by a more modest increase in adjusted EBITDA and adjusted EBITDA as a percentage of net sales in the third quarter and that is pretty much where we stand today through the first nine months of the year. In the third quarter of 2023, we generated $502.7 million of net sales, $80.4 million in adjusted EBITDA. Adjusted EBITDA is a percentage of net sales of 16% and adjusted diluted earnings per share of $0.27. Base business net sales, which excludes the Back-to-Nature brand, decreased by approximately $15.6 million, or 3% in the third quarter of 2023 compared to the year ago period. Base business net sales, excluding Crisco, where we have lowered price due to decreases in soybean oil costs, were up $0.6 million, or 0.2%. Our base business net sales remain robust despite the year-over-year declines, and we are essentially flat to the third quarter of 2021. We have now lapped many of the larger price increases while also reducing price on our Crisco vegetable oil and shortening products, and increasing trade spend on Green Giant and Le Sueur canned vegetable products. As a result, the impact of pricing was a reduction to net sales of $1.1 million. FX added another $1.3 million reduction, and volumes contributed to the…

Thank you, Bruce. In closing, Q3 results demonstrated strong year-over-year improvement with pricing, covering inflationary costs, improved margins and a reduction in leverage. We remain on track to achieve fiscal year '23 guidance of adjusted EBITDA. We've also made significant progress against reshaping the portfolio with today's announced divestiture of Green Giant U.S. canned vegetables. This concludes our remarks, and now we would like to begin the Q&A portion of our call. Operator?

[Operator instructions] The first question comes from Michael Lavery with Piper Sandler. Please go ahead.

You gave some of the color on the sales run rate for the Green Giant shelf stable or the canned. I know you're not disclosing the terms of the deal, but can you just help us figure out what some of the proceeds would look like for debt repayment? You paid $755 million for that business, and it looks like from our data, the canned pieces at the time might have been around a third of that. Would that $265 million allocation to canned be a starting point? And if we took the $133 million impairments that you reported in conjunction with the sale, about half that's left is the $130 something proceeds. Is that about the right way to think about it or is it the math?

Yeah, so like you said, we didn't disclose what the terms of the transaction were. This business is about $75 plus million of net sales out of a total of $500 million plus for Green Giant. So it's a small piece. So I wouldn't suggest that this is a significant portion of what we paid for the business. So as a reminder, within Green Giant, we've got in the US, the Green Giant frozen business. We've got this Green Giant canned business, which has just been under pressure for years. We also have a nice business with Le Sueur, which is a premium canned vegetable business and then we've got our Green Giant frozen business and canned business in Canada. This is just the Green Giant canned business, in the US.

Okay, yeah, that makes sense. Right, you're keeping Canada as well, right?

Yeah.

And just a quick housekeeping one on the share count, I know you've mentioned some of the proceeds from the ATM in the 3Q. Would the timing of that mean that even without doing any further issuances, which should bump up the share count for 4Q? Or put another way, what was the share count at the very end of 3Q?

So you'll see it on our Q, when it's filed. I think it was approximately 78.6 million shares.

Okay, great. Thanks so much.

The next question comes from William Witter [ph] with Bank of America. Please go ahead.

Hey, thanks for taking our question. This is Rob Rigby on for Bill. So I guess, while you guys are thinking about pursuing additional asset sales and kind of how we should be thinking about them in terms of size, do you think that they're going to be more transformative in nature or smaller? And then if you can speak to just the general divestiture market and what that looks like. Thank you.

Yeah, sure. So part one, we've now divested Back to Nature and this Green Giant U.S. canned business, which as we laid out sort of vision, business unit, strategy, go forward from an M&A standpoint, the divestiture strategy included identifying businesses that we didn't think we were positioned to win over the long term, potentially a growth challenge, margin challenge, in this case working capital and so we've now divested two of those businesses. We haven't really talked publicly about other brands that we may be considering, although we've identified things internally, nor do we typically talk about things from a brand standpoint that we're going to sell. So we're going to continue to evaluate that and again, this is two of others probably to come. Casey has talked recently in the past of looking to divest between 10% and 15% of our total net sales. And so for context, I think that maybe that could help you out. As far as the overall M&A environment, it's been relatively quiet over the last two years, but it has shown spurts of some big deals getting done and some other deals like this transaction getting done. And so we're going to continue to monitor and act at the appropriate time and then also very much stick to a process from what we think fits in our portfolio and what we think someone else is a better owner of.

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

Hi, Bruce. Congrats on the sale. So that can business has always been kind of a working capital hog, I think in our view, particularly as you're coming to 3Q and 4Q. So maybe you could talk about what this does for cash efficiency and if you're looking into the next year, what kind of working capital swings you wouldn't have with the can business I think would be helpful.

Yeah. So you highlighted it. Over time, this business is -- it's a very competitive market with high private label. We are not the manufacturer of this business. So our counterpart in this transaction, Seneca, was the manufacturer that they're a great owner for this business and as you pointed out, this is a seasonal working capital business where you are basically buying at least a year in advance of all of your sales, that inventory during a period between July and October, which means that your planning is starting some 18 months before that pack season, which puts a lot of pressure. And so as we've owned this business, virtually every year has been either a high working capital or low working capital as we've tried to adjust to the right size pack. We just haven't gotten it right. It's just a challenging business. It's closer to the agricultural chain than a lot of our other businesses. Even though it is a canned, packaged food business, it's just tough. We're not in the agricultural food game. There's a better owner for it and this is really going to simplify our business going forward. And the reality is this is a very, very high inventory intensity business. So, we bought the entire year supply at one time during the year and held it for the entire year. So you think about the intensity of that on the sales profile, it's pretty high. So, we obviously will not have to finance that additional kind of inventory going forward in the future, particularly in the Q3, Q4 timeframe.

Will you guys get your working capital out of it before the sale closes? Or is that kind of vacant of the proceeds? Is there proceeds plus the invested working capital because you should have an online right in the next quarter.

Yeah, everything will come out. So we sold the business and all of the inventory.

The next question comes from Robert Dickerson of Jefferies. Please go ahead.

Great. Thanks so much. I just have a quick one for me. So I guess in the quarter, organic volumes were down 2.5%. It seemed like they were doing tracking a little bit worse than all the track channel data that we all look at. So, maybe just kind of simplistically just explain what the delta is. I'm not sure you're clearly selling in non-track channels or there's any inventory dynamics or what have you?

So, our track channel that we see, I think it's pretty similar for most of the analysts. I know there were a couple that were way, way off in terms of what they were saying was going on in consumption versus what we actually saw. But I think we were down about 3.5% in consumption with the data that we see and that compares to being down 3% net sales for the quarter. So, we do have some non-track channels. So, our Canadian business is obviously not tracked here. That's a little bit less than 10% of our business and we've got some food service, food service and members Mark and Sam's, wouldn't necessarily be tracked in the general data. So, there are some differences and we've seen strength in our out-of-home business, particularly in spices and seasonings.

Right. Okay. Got it. And then, I guess, just Q4, I think you said sales will be down 0% to 4%. I'm assuming that's organic and then, secondly, it's just like what gets you to flat, what gets you to down 4%, like with two months left, one of the fulcrum variables.

Yeah. That's a meat business sales calculation. So, we exclude divestitures in that fourth quarter period. Honestly, the main thing that we're watching, we know what the Crisco price decline is. So, the price decline is the pressing sales. But again, which much lower oil costs were, we're doing just fine on the gross profit line. So, it's really a matter of, I would say, how we come through our seasonal kind of merchandising period and how well are we getting left in the November and December time period on our holiday merchandising, particularly in the baking season. And then, I think it's just, do we start to see some recovery in our frozen portfolio as we've taken some actions to compress the price premium on rice, vegetables, and some other places where we to act on that portfolio. So, that range is kind of what we have out there now. We'll watch it, obviously, pretty carefully and see where our trends are. But I feel pretty comfortable that we're in the middle of that range right now.

All right. And then, I guess also, with respect to this share issuance and ATM capital structure, you kind of went through a lot in the call. Do you feel at this point, you're just in clearly a much better position with respect to capital structure such that we shouldn't really expect more kind of opportunistic issuance or that kind of to be determined?

The biggest thing from our capital structure over the last two years, or maybe the biggest two things have been leverage and then this first tranche of 2025 notes and certainly, we would love to go back in time to 2021 and refinance something at like sub 5% or crazy like that. Knowing the environment that we've been in, we've been very focused on solving that maturity and then also bringing our leverage down. So, the equity issuance this quarter or third quarter really helped accelerate our debt reduction. I think these two asset sales will help bring debt down, marginally beneficial from a leverage standpoint, but all in, we think we solved that capital structure issue and so, things are improving dramatically, but certainly, if there are questions around capital structure earlier this year or midsummer, we think those should be largely answered.

All right, super. I'll pass it on. Thanks.

The next question comes from Carl Pestelos of JP Morgan. Please go ahead.

Hi, this is Mike on for Carlo. Thanks for taking our question. Two quick ones from us. The first being is that, you're seeing the balance sheet for this quarter, $69 million assets held for sale. Is that the right way to assume what the proceeds are for the sale of Green Giant can and then better yet, the second part to that, the FY guide, you guys held EBITDA. Does that kind of imply that EBITDA for this business that you sold was kind of minimal this year, so there's minimal impact or it's just better improvement in the base business that's offsetting that? Thanks.

Yeah. So, on the EBITDA part, just a reminder that this is $75 million, $85 million of annual net sales. There's two months left in the year that we won't have this business for. So, that's 10 months that we had the business. So, it will impact what our EBITDA is by a few million bucks, but we're largely through the year. We'll come back next year when we give our fourth quarter and full year update to talk more detail about the full year impact. And then as far as the other piece, we didn't disclose the transaction details.

Okay. That's awesome.

The bottom line is that this is the shelf stable. The Green Giant US can business is a lower margin than our average. And so, we feel like we can cover within our EBITDA guidance range, we can cover the seven-week impact of that coming out. On a sales basis, that's obviously a little bit larger. So, we're just closing here. We're kind of adjusting that in terms of our sales guidance.

Got it. Thank you. That's helpful,

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

Good afternoon. Just so we're clear, the asset has been divested. We're not waiting on any kind of approval or...

No, it's complete. The rest are complete.

Okay. And now, with the sale, like when we look at Le Sueur or Canada Canned, does this just change anything in terms of having a more difficult time going to market with scale, more difficult time with sourcing product? Or how do you look at the remaining can side of the business?

Honestly, the canned business in Canada is a completely different business. Not the same supplier, not the same products, not the same formulas. So, it has really nothing to do with the US business. We have a Canadian supplier that supplies everything labelled differently, packaged differently. There's no synergies between our US and Canadian canned business. Le Sueur is a different business. We actually sourced that from Seneca, who bought the Green Giant canned business. So, we'll continue to manage and market that. That's actually a nice margin business. It's very differentiated and it's held up very nicely. So, we'll keep that business for now. In the future, maybe that's something that we could divest, but it's a reasonably good business that I think we can run and continue to source.

Thank you very much, guys. Appreciate it.

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

Thanks. Congrats on the sale. Casey, I'd love to get your thoughts about how your strategic vision on Green Giant has maybe changed over time. It sounds like you're thinking frozen is a bigger part of your future than maybe you might have been thinking in the past and that's leading to this more selective sale. So, any thoughts about your future with the category and maybe how you might have warmed up to the Green Giant frozen side? And I thought it was an interesting point made before about the maybe perhaps the smoothing out on inventory or effects to your free cash flow from this part of the Green Giant being sold. Can you maybe give us a sense about how much your free cash flow might be smoothed out versus what it was prior? Thanks so much.

On that last question, we should see a significant impact from smoothing our cash flows without having to finance the inventory. As Bruce said, it's gone up and down with how much we've bought each year and sometimes we end up buying a lot, sometimes we end up buying a little, but this will make our inventory profile be a lot smoother. We'll still have some seasonal builds to our inventory Q3, just thinking about moving into the seasonality of Crisco oil, Crisco shortening for baking, Bear Creek dry soup will still have some build, but we won't have this inventory from having to buy everything on a seasonal pack once a year. That impact was largely in the canned business. This doesn't imply a change in my view of Green Giant Frozen. This implies an opportunity to divest the Green Giant canned business that I don't think was a good fit with us long-term, where we had to carry all this inventory we had in a high interest rate environment in a category that is mature and slightly declining and we were the second branded player. I still have the same questions that we've talked about on Frozen, the business going forward. I believe that we're going to have to fix the economics, which we are making some progress doing. Right now, the category overall is a little soft as you've heard from other Frozen players and we need scale in distribution logistics in a Frozen network to make this work because our costs are going to market right now, probably a little bit higher than people who have larger scales and you need that scale to make it efficient. So I haven't changed my view on Frozen, honestly. This, to me, was a natural buyer for this business.…

That is super helpful. I think I was piecing together some comments you made at a conference previously in the fall and then ran with this, what you're doing here and thought maybe you were shifting a little bit more than you were. So my apologies for misinterpreting those two things. I just wanted to ask Bruce and Casey, is there any early read for 2024 that you feel like sharing with us in terms of the key gross margin drivers, pricing, productivity, inflation, anything that we should be thinking about for our models, particularly the first half?

Yeah, I think we'll give you more formal guidance with the fourth quarter release, but I would say right now, there's some signs that we're picking up already. So one is that our read on inflation right now is like 1% to 2%, which I'm almost doing backflips because given the last two years, that's quite an improvement. So we have about 1% to 2% inflation. We don't think we'll have a lot of pricing, but there may be some tactical pricing on certain commodities that might be disproportionately going up, but broadly, I don't think we'll have a ton of pricing. We will a little bit, as I said, on the places where we need to and we have good justification. We are ramping up our productivity. So we're getting much stronger cost savings. We kind of started that formally last year to really track and measure how much we're driving. We're stepping up our expectations next year, and we're getting good delivery on that. So I expect to see some margin improvement from productivity, and I expect to see productivity offset some of that 1% to 2% inflation that we can't cover with pricing. Honestly, I feel pretty good about the track of our businesses, most of our businesses. Crisco, honestly, I don't know how to call it because it depends on how much oil goes up or down, which is where we'll price accordingly. I would say the only place we got to see improvement in the business to get good, solid, kind of top line progress where we want to be in that 1%, 2% range. We need to kind of get the Frozen business performing better than it is now, but that's kind of what I'm seeing. I'm seeing kind of a more steady state environment that we're heading into next year, inflation monitoring down to 1% to 2%, much more limited pricing actions, getting back to kind of the fundamentals of driving some of our brands in the portfolio and doing the right things to drive cost savings in the business.

This concludes the question-and-answer session. I would like to turn the conference back over to Casey Keller for any closing remarks.

Thank you all for joining us today. I appreciate your attention to the Q3 results and the announcement of our divestiture of the U.S. Green Giant canned vegetable business. Thank you and we'll talk to you next quarter.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.