Good day and welcome to the B&G Foods Fourth Quarter and Fiscal 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 would now like to turn the call over to AJ Schwabe, Associate, Corporate Strategy and Business 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 and full year 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, adjusted gross profit, adjusted gross profit percentage 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 2024 and beyond. Bruce will then discuss our financial results for the fourth and fiscal 2023 and our guidance for fiscal 2024. 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 fourth quarter and fiscal 2023 earnings call. B&G Foods fourth quarter results were solid, slightly exceeding expectations. Base business net sales, which exclude net sales of the divested Green Giant U.S. canned vegetable and Back to Nature businesses were essentially flat, but for the impact of lower Crisco oil commodity pricing year-over-year. In addition, base business volume in the aggregate across the portfolio was slightly up for the quarter, stabilizing for the first period since significant pricing actions in fiscal year '22. Profit margins also demonstrated steady progress. Adjusted gross profit percentage increased 130 basis points versus last year to 21.9%, reflecting pricing recovery of higher cost and productivity savings. Adjusted EBITDA as a percentage of net sales was flat to last year at 15%, with adjusted gross profit improvement, offset by the reinstatement of the short-term management incentive accrual in G&A expenses versus zero in fiscal year '22. With fourth quarter results, B&G Foods delivered fiscal year '23 net sales of $2.062 billion and adjusted EBITDA of $318 million, well within our revised guidance reflecting the divestiture of Green Giant U.S. canned vegetables in November. Bruce will provide more details on quarter four and fiscal year '23 results. Stepping back, we achieved several critical milestones in fiscal year '23 on a journey to reshape and strengthen B&G Foods. First, margin recovery. After historic inflation pressure in fiscal year '22, margins recovered strongly in fiscal year '23 behind pricing actions and productivity efforts. Adjusted gross profit percentage increased 280 basis points year-over-year from 19.4% to 22.2% in fiscal year '23. Adjusted EBITDA as a percentage of net sales increased 150 basis points to 15.4% in fiscal year '23. Going forward, input cost inflation has moderated…

Thank you, Casey. Good afternoon, everyone. Thank you for joining us on our fourth quarter and fiscal year 2023 earnings call. As you can see, we had another strong quarter, and we finished the year largely in line with our guidance. As we explained at the outset of 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 the year, followed by a more modest increase in adjusted EBITDA and adjusted EBITDA as a percentage of net sales in the third quarter. And for the fourth quarter, we expected similar performance to the prior year before accounting for the divestiture of Green Giant U.S. shelf-stable product line. This is essentially how the year played out for us. In fiscal 2023, we generated $2.062 billion in net sales, $318 million in adjusted EBITDA, adjusted EBITDA as a percentage of net sales of 15.4% and adjusted diluted earnings per share of $0.99. Base business net sales, which excludes net sales from the Back to Nature brand and the Green Giant U.S. shelf-stable product line decreased by approximately $30 million or 1.5% in fiscal 2023 compared to the year ago period. Base business net sales include a benefit of $93.3 million from pricing and the impact of product mix. This was offset by negative impacts of $5.1 million from FX and $118.2 million from volumes. And the pricing helped particularly in our results in the early part of the year. For fiscal 2023, adjusted EBITDA increased by $17 million or 5.7% compared to $301 million for fiscal 2022. Adjusted EBITDA as a percentage of net sales was 15.4% for fiscal 2023 compared to 13.9% for fiscal 2022. For the fourth quarter of 2023, we generated $578.1…

Thank you, Bruce. In closing, our quarter four and fiscal 2023 results demonstrated strong progress with improved margins, stabilizing volumes, stronger cash flows and a reduction in leverage. We remain on track to further improve the business in fiscal 2024 and beyond. We have also made significant progress against reshaping the portfolio through our focused M&A strategy, including the divestiture of two businesses, the Back to Nature brand and the Green Giant U.S. shelf-stable business that are not core to the B&G Foods of the future. This concludes our remarks, and now we would like to begin the Q&A portion of our call. Operator?

Thank you. [Operator Instructions] The first question we have is from Andrew Lazar of Barclays. Please go ahead.

Good afternoon, Casey and Bruce.

Hey. How are you?

Good. First off, I guess, your base business growth expectation, as you mentioned for '24, I think is roughly flattish. And I'm trying to get a sense of how you see that playing out for the year, both from a volume and a price standpoint. I think you mentioned another $15 million impact from negative pricing for the year for just the Crisco pass-through pricing model, if I got that right. So that's about maybe down 1%. So does that assume that volume is probably up 1% or so for the year? I just want to make sure I have that right.

Specific to Crisco.

Okay. So could there be some additional negative pricing activity such that I'm -- trying to get a sense of what you think pricing looks like and just how positive your volume expectation is/

Yes. So just let's address these separately. So for Crisco, as we've said over the past year or so, we put in place a pricing model where we interact with our customers quarterly. And based on where input costs are, we adjust price. If we think about how last year played out, input costs were still high from the 2022 levels at the beginning of the year and over time came down. And so quarterly, we were reducing price for Crisco. We will be lapping those higher prices for Crisco for the first half, the three quarters of this year, which will then mean assuming everything was perfect, margins would be the same from a dollar standpoint. Sales would be down, margins would be up from a percent standpoint, pricing would come down for Crisco, and we actually think we get a little volume elasticity benefit. And that's kind of what we're seeing for Cisco today.

And then...

Yes. But if you look at the base business, excluding the divestitures and excluding the impact of Crisco, we're basically saying we're going to be flat to slightly up. And that will be probably on both volume and pricing. So those two will be kind of running more closely together. And if I think about the flow of that, we still are kind of coming out of that trends improving, but I would expect that the first half of the year is a little bit below that, and the second half is a little bit better than that. And that's how we kind of see it playing out right now. And we are seeing kind of volumes and pricing stabilize. And we don't have a lot of growth plan from pricing other than the movement of Crisco, which is kind of irrelevant to the bottom line.

Got it. That's helpful. And then your guidance, obviously, at the midpoint on EBITDA margin suggests -- like you said, some additional modest improvement. And obviously, there was a big jump up in margins in '23 versus '22. EBITDA margins, though, still well below where they were just a couple of years ago. So I'm trying to get a sense of maybe what would impede more significant EBITDA margin improvement as we go forward. Is it something just in the portfolio that's changed versus where you were a couple of years ago? Or what would it take to get back to those levels if that's even a reasonable expectation at some point?

Well, I mean, Andrew, our goal is to get back to 18% to 20%. So that's what we want to -- that's what we're driving to. And I think it's going to take a couple of things. So one is M&A divesting businesses that are low margin. A lot of working capital intensity, continued productivity. So we've started on that productivity savings journey. We've got that kind of going. This is going to be our second year where we're really focused on it. So we see some improvement from that. And then the third thing for me would be, as Crisco oil pricing comes down, we will get some benefit on margin from that. As ironically, as sales come down, but the same gross profit, we're going to improve our margins on the Crisco business just because of that compression of oil pricing. So those three things together, we -- that's where we're trying to head to get back to 18% to 20%. But it's going to take those three things working together to get there.

And if you think about some of that drag, what Casey is describing on Crisco, bigger example for that brand, but to the same degree across a lot of the rest of our portfolio, when costs were rapidly rising, we took price to protect profit dollars which just the algebra suggests lower margins as a percent, just that's how the math works.

Crisco will be the most extreme example of that, yes.

All right, okay. Thanks so much. I'll pass it on.

The next question we have is from William Reuter of Bank of America. Please go ahead.

Good afternoon. My first question on the topic -- sorry, I've got an echo, on the topic of future additional asset sales. I wasn't aware that you were still actively pursuing these. I guess, is this new? Or have you been continuing to pursue over the last handful of months and quarters? And I don't know if any sense of magnitude or what types of assets you're looking at?

Sure. So our M&A process, and we tend and we will tend to be a long-term net acquirer but we are reshaping the portfolio. And as part of that, there are some things that are going to come out. So we've sold two businesses that we felt were not a fit to the portfolio that we want to run in the future and over the long term. There's probably a couple of other things. There's nothing that we're active in the market in terms of running a process for right now. So there's a little bit of stay tuned. And when it's appropriate to talk about it, we'll talk about. Likely what you will see is other things that maybe are not a good fit for us or that could be a better fit for other people.

Got it. That's helpful. And then in the answer to a previous question, you mentioned that you weren't expecting to take much pricing this year. I don't know if I heard explicitly what your outlook is for input costs and let's exclude Crisco since that's the pass-through model. But for the remainder of the products, what's your outlook on where they should be this year versus last year or any other sources of either inflation or deflation?

I think what we are seeing right now in our input costs, and obviously, this is still early in the year, and we're still trying to project it fully. But I'm seeing something more in the 1% to 2% range, 1% to 2% high end in terms of input cost inflation, probably on the lower end of that range right now as I see it, but maybe a little bit in freight and transportation, but I think it's probably more in line with that range. So I'm not -- I feel like right now, our job is to get the business back, stabilize on volumes, not take as much pricing as we have over the past year but drive productivity to offset that inflation and then maybe give us a little bit of margin improvement. That's our focus right now.

Got it. Perfect...

There may be some selected places where we're going to take price where we might have a big jump in one particular small commodity input, but that's going to be very, very selective.

Got it. Very helpful. That's all from me. Thank you.

The next question we have is from Karru Martinson of Jefferies Company. Please go ahead.

Good afternoon. What has been the kind of the competitive response in terms of your peers? We constantly keep hearing about the consumer trading down to private label and the give back and pricing the elasticity that you referenced. Are you seeing that sustained shift in terms of competing products for your categories?

I mean it really depends on the category honestly, because we have the pass-through model on Crisco, we're actually seeing volumes increasing on that business. So we're seeing a pickup in our unit sales as a result of bringing the price back down to reflect the lower oil commodity cost pricing. So even though the percentage gap to private label might be the same, the absolute gap has come down and the absolute price point has come down. So on that one, we're kind of moving where we'd expect to in terms of our share performance. I would say there's a couple of other places where we've seen inflation drive up pricing. And even though we try to maintain our percentage gap to private label at the higher absolute price points and just maybe a couple of categories like well, canned vegetables, we're out of now. But that was one where we were seeing a little bit of that dynamic. But for the most part, we watch the gap to private label pretty closely, and we try and manage to that so that we don't have a lot of pressure from trade down or we maintain the same relative position in the marketplace.

Okay. And when we look at the kind of the implied cash flow guidance here for the year with the $70 million or so for the dividend when it was $300 million maturity in 2025, would it leave kind of $230 million that you would need to refinance. Is that to be paid off through the asset sales? Or how would you look at addressing that?

So for the remaining stub on the 2025, the base case assumption is it's a combination of cash from operations and revolver draw. And keep in mind, we've got a big revolver, so we've got plenty of capacity there. I think there's always options around potential refinancing as part of a broader refinancing if the market is hospitable and it makes sense to us to the extent that we have any more asset divestitures, there's money coming in the door from that as well. And so I think there's a couple of things, but I would use as the base case, what we laid out to investors, ample cash from operations, coupled with liquidity from the revolver.

Thank you very much. Appreciate it.

The next question we have is from Connor Rattigan of Consumer Edge Research. Please go ahead.

Hey, guys. Good afternoon.

Good afternoon.

So correct me if I'm wrong, but it sounds like you registered positive base business volume growth in the quarter. So that was quite a bit ahead of what we saw in the track [ph] data. I guess could you maybe help us understand what drove that differential? And looking ahead to 2024, how we should sort of think about volume trends over the course of the year and if maybe there are any items we should keep in mind in terms of divergences versus track data?

Yes. So first, in the fourth quarter, we saw a small growth in volume. So I want to be careful that we don't over call that one. But honestly, we kind of celebrated getting stable volume trends on the business after the past year coming off to all the inflationary pricing. What we're trying to move forward is to kind of get that same trend line, small growth in volume in 2024. The difference between the measured data, the track data and what you guys are seeing is, there's a lot of things. I mean there's channel coverage that's not complete with what we do. We sell to -- we have businesses that are selling to other foodservice outlets, particularly in the spices and seasonings business, in some cases, in syrups. We have some private label business that we're selling, that's not tracked in your data. So we are a heavy player in private label in the baking powder business. So there's a lot of our business you don't see in the track data. So it's hard to really look at the track data and directly translate it to our sales results because we're participating in -- we're participating in foodservice business. We're participating in some private label manufacturing, we're participating in some other businesses that we do with other kinds of customers. So it's a difficult thing to translate it directly. But obviously, we look at everything pretty closely in terms of what the trends are.

So I guess just following up on that, would it be fair to say that the -- I guess, maybe the non-track businesses are outperforming what you're seeing at retail?

I mean, for sure, we're seeing the foodservice businesses in the past year, outperforming trends in retail. And honestly, I think that's across -- that would be not just us. You would see that in other businesses as well. So we -- that was the opposite during the pandemic. Now we've seen it kind of flip back to where foodservice growth has outpaced retail growth. I expect that to normalize this year at some point. Honestly, I expect both of those -- that trend to kind of stable, get to more stable trends year-over-year. But that obviously depends on a lot of economic conditions, whether or not we hit a recession or something that could change that dynamic. But right now, we're kind of seeing those two come back in balance in terms of consumer behavior and trends.

Okay. Makes total sense. And then just as a quick follow-up, Bruce, in your prepared remarks, you noted some increases in promotional and trade spend in certain parts of the business. I guess, could you maybe be a little more specific as far as maybe what brands those impacted? And I guess, what type of lift you might have seen from that spend? And just overall, if you were happy with what you saw.

I don't think we're necessarily going to talk about the specifics on the brand promotional strategy, but this is, again, in a way to improve volumes. I think we're seeing this across many of our competing or just peer group where people are increasing promotional spend. I think it's been somewhat rational, but spend is still lower than it was pre-pandemic. So it's going to be higher than it was last year or the year before, it's still sort of normal. And we expect to get some volume benefits and I think you do see that.

Yes. I mean, for the most part, we put trade spend into businesses because we're going back to more normal promotion patterns, we do see volume look behind that, and we watch that pretty carefully. And if we don't see volume from it, we change. But for the most part, that's been successful play. And as Bruce said, we're not all the way back to where we were pre-pandemic. So we're kind of moving back there over time as I think most players in the food industry are as normal promotion patterns and merchandising patterns resume.

All right. Sounds good. Thank you.

The next question we have is from Hale Holden of Barclays. Please go ahead.

Hi, afternoon. Thank you. Super excited to try the Fireball seasoning, by the way. But...

Don't drink too much of it with the seasoning.

Trying to age myself out of life here. So Bruce, the $0.5 million debt extinguishment costs in the quarter, did you buy some bonds back? Or was that a term loan pay down?

Yes. It's just all the refinancing stuff that we did kind of back half of last year.

Okay. And then the second question I had was as your thinking about divestitures in the market, if you -- I mean, you've obviously been talking about it for 6, 9, 12 months in various forms. And I was wondering if you had seen the market improve as a seller standpoint or multiples come up or more interest in the pipeline?

I think there's certainly chatter that sounds like there should be more activity. I would have told you the same thing 6 months ago or a year ago. But I think as the financing environment starts to stabilize, we're going to see more activity. We probably have seen some nice little brand deals get done. We saw two of our deals get done. I think it's fine. I don't think it's shut down. It's just not gangbusters like it was a few years ago, but it should be fine.

Okay. Great. Thank you very much.

Next question we have is from David Palmer of Evercore ISI. Please go ahead.

Thanks. Hey, guys. Inventory declined in the quarter, obviously, with the divestiture. I'm wondering how -- I always ask you about free cash flow conversion. But I wonder how much the inventory change will happen in '24 and where you see free cash flow conversion settling in of EBITDA going forward?

Yes. So I think the inventory reduction in '23 from both the sale of Green Giant U.S. canned vegetables and honestly, base business improvement coming off the inflationary cycle and the supply shortages. We did a lot of reduction in this year. So in the future, I wouldn't expect to see that kind of magnitude change. Obviously, a divestiture would impact that. But in terms of our base business and organic kind of trends, I'm looking for kind of a 2% to 3% continuous improvement trend line as we get better in terms of our operations and our demand supply integration. That's kind of our expectation. So you will see some benefit from reducing working capital, but nothing to the magnitude you saw this year. Look, our -- look, our long-term perspective, and I think we've said this before, is that we want enough excess cash that half of it can be used to pay the dividends and half of it can be used to pay down debt. And that's where we're driving. That's where we're driving so that we have the ability to kind of reduce debt year in, year out with our excess cash flow.

I think in the past, you might have had a 60% of EBITDA type target? Is that...

Give or take that. So I mean if you think about the midpoint of our guidance range, call it, $315 million of adjusted EBITDA, throwing $5 million, $10 million in noncash or share-based comp is sort of your baseline. And then again, we gave guidance on the call, but cash interest at the midpoint is about $140 million. Cash taxes have been bouncing around $30-plus million a year. CapEx of $35 million, $40 million. Casey talked to modest, certainly not what we had last year, but modest levels of inventory reductions/working capital improvement, you could see a number that's $110 million, $125 million or so in excess cash before dividends, if you get the benefit of working capital in there. And dividends are about $60 million. So...

That's all helpful. And just a question on Crisco. Your -- you said you were expecting profit dollars from Crisco to remain pretty steady this year, which is great to hear. And going forward, what do you think will be your biggest watch out for that businesses -- that brand's profitability? Is there a level of volatility of soybean oil that makes keeping profit steady, much more difficult? Or is there price thresholds where trade down accelerates? I mean, what are things that would kind of throw you off the horse, so to speak, on keeping profit steady for Crisco?

Yes. I think it's our ability to just pass through the oil costs. And so far, we've been doing that. I mean, if you would talk to me in 2022, I would have said the risk was much higher. But since January, kind of January first quarter of last year, we implemented this pass-through model with customers, and they like it, they like it. We come to them every quarter and say, here's what the oil cost. Here's what we're going to price to relative to that. And they've been pretty good about reflecting that in the pricing. And so it's been successful. So it's a strategy to maintain our gross profit dollars. The -- I would say the only thing I worry about is that soybean oil goes back up to, I don't know, $0.80, then we're going to pass that through and take pricing up. Unfortunately, at that level, we see the absolute dollar gap to private label growing, percentage is the same, but the absolute dollar gap. And so we see some risk to the volume trend of the business with that kind of commodity structure. I mean, look, fortunately, right now, soybean oil prices last time I checked are kind of in the $0.45 per pound range, which is well down from where it was last year and well down from the high of $0.80 that we saw probably 18 to 24 months ago. So I mean that's really the big risk. I mean the only other thing we watch is we have a shortening business, which is a key part of that whole Crisco business outside of the oil. The shortening, we look at the long-term household penetration on that business just to make sure people are still baking, cooking, frying at the same level.

That's great. Thank you.

[Operator Instructions] There are no further questions at this time. I would like to turn the floor back over to Casey Keller for closing comments.

Thank you all for joining us today for the fourth quarter earnings call. Obviously, reach out if we want to talk anything. Appreciate your attention. Look, we're pleased with the results in the fourth quarter, but obviously, we have more work to do in '24 to get this business in the shape we want it. So thank you very much.

Ladies and gentlemen, this concludes today's conference. Thank you for joining us. You may now disconnect your lines.